Special Message

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A SKEPTICAL VIEW OF THE WALL STREET BAILOUT -- (House of Representatives - October 02, 2008)

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--- The SPEAKER pro tempore. Under the Speaker's announced policy of January 18, 2007, the gentleman from California (Mr. Sherman) is recognized for the remainder of the time.

Mr. SHERMAN. I thank the Chair. I have got 30 minutes, and I will share some with the gentlewoman from Ohio in just a second to describe the flaws with this bill. Believe it or not, 30 minutes is not long enough. But first I want to mention about the calls that are coming into our office.

The calls used to be from people around the country. Now Wall Street firms have their employees unplugging those headsets to call investors and instead calling Members of Congress. So now the calls coming in to at least my office have shifted from 20-1 against this bailout package for Wall Street, down to about 3-1 or 4-1 against this bailout.

I ask my colleagues not to be confused. Edit out some of those calls that are coming to you from folks who are being paid to make the call, and you will realize the country remains absolutely overwhelmingly opposed to this Wall Street bailout bill.

I thank again the gentleman from Ohio, and I will make a few more points.

We had a meeting of the Skeptics Caucus, which is now a bipartisan Skeptics Caucus, where we heard from Bill Isaac. Mr. Isaac was Chair of the FDIC, having first been appointed to that board by President Carter and then appointed by Reagan. You don't find very many people who have support on both sides of the aisle like that.

Bill Isaac led the FDIC in solving the 1981 crisis, which was probably worse than the crisis that we have now. He used the emergency powers of the FDIC. He was able to solve that credit crisis without significant cost to the taxpayer.

We ought to hear from Bill Isaac. And I look forward to us defeating this bill tomorrow so we can have hearings and all my colleagues, not just those who came to the Skeptics Caucus, can hear from Mr. Isaac and so many others, because the starting point is this testimony that we didn't hear before any hearing, because there have been no hearings on this bill, but rather a letter sent to Members of Congress by hundreds of eminent economists, including three Nobel Laureates. And they said, we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action.

So, Nobel Laureates, economists eminent in their field, say the sky will not fall if we take some time. The only way to pass this bill is to keep up the panic. The panic has to be calmed down. We have got a few days. We have got a week. We have got 10 days, and that is more than enough time to write a much better bill.

But let me summarize some of the other things that Bill Isaac told our Skeptics Caucus. A vote ``no'' on tomorrow's bill is not a vote to do nothing. It is a vote to defeat that bill and to start writing a much better bill.

Under the bill that comes before us tomorrow, in Mr. Isaac's belief, half of all the money is going to be used to bail out foreign investors who made dumb business decisions. Now, I am not real sure that I want to use taxpayers' money to bail out American investors who made bad business decisions. But why are we bailing out the Bank of China? Why are we bailing out the Saudi royal family? We are doing so because they demand it. They communicate those demands at the highest level to our administration.

After I yield to the gentlewoman from Ohio, I will describe how the bill clearly provides that we can send as much money as Treasury wants not to bail out American investors, but to bail out foreign investors. And when I say foreign investors, I don't just mean companies here in the United States that happen to have foreign owners.

I have sought at the Rules Committee to simply put an amendment in this bill to say that we are not going to buy any toxic asset that wasn't demonstrably owned by an American on September 20. That amendment will not be allowed. It was not allowed last time; it won't be allowed this time.

Why? Because they think they can hide from this Congress and from the American people the fact that hundreds of billions of dollars are going to overseas investors. And there are transparency provisions in the bill on a lot of things, but the one thing that will never be revealed, when Goldman Sachs sells a bond on December 1 to Treasury, what will not be revealed is whether Goldman Sachs bought it from the Bank of China two or three days earlier with intention to sell to Treasury. We are going to be buying bonds that are currently in vaults in Beijing and London.

What Mr. Isaac also pointed out is that this bill is not going to solve the problem. People think that if you act in a panic and you throw $700 billion at something, you are going to solve it. Hardly. In his estimation, the credit markets will not be appreciably working any better than they are today. They may loosen things up for a week or two, but you are looking at a December that is no better than it would be if we did not pass this bill.

The FDIC could solve this problem under their existing powers. If they are a little shy to use those powers to the hilt, we can and should pass a bill that outlines that, yes, indeed, we do want them to use their powers. What should they do? They should provide for a temporary time a total guarantee on all of the general credit debt of banks, so the regulated commercial banks would be places where people know their money is safe.

They are subject to regulation, and the main part of this crisis is that the banks are unwilling to lend to each other as they traditionally do because no one bank is sure that the other bank is safe. We have got to say the commercial banks of America are safe and tell investors around the world that is where they can put their money with total safety.

Now, this leaves out some Wall Street entities that are desperate for that $700 billion. They can just taste it. But it allows us to solve this problem without appreciable cost to U.S. taxpayers. And the FDIC collects an insurance premium from the banks so it would be the financial system, not the American taxpayer, paying the cost of taking care of this risk.

Now, I would hope that every Member of Congress has received my blue paper. I have sent it out today via e-mail, I have handed it out on the floor, but I know there are a few that haven't received it. Please contact my office and read these seven pages. Learn how this bill will send half the money to foreign investors. Learn how this bill bails out firms that will continue to pay $1 million a month salaries, and could raise those executives to $1.5 million a month, should they choose to do so.

Please, read the paper. Read about the key provisions of the bill. Then you will be armed with the information necessary to deal with the fearmongers that tell you, well, you had to pass that bill. You had to dump $700 billion from a helicopter onto Wall Street, because somehow that was going to take a terrible economy and turn it into a great economy.

Such an action will indeed, will indeed, make things better for a few Wall Street executives, and they are very determined, and their employees on company time are calling our office.

With that, I yield to the gentlewoman from Ohio.

Ms. KAPTUR. I thank the gentleman, the chairman of a subcommittee on International Relations, who has just dedicated himself, his great intelligence and great fervor, to helping to explain to the American people and our colleagues what is really at stake, and to try to move this institution, the House of Representatives, the closest body left at the Federal level to the American people, to move us to the right decision tomorrow.

Tonight, so many of us, we are praying for our American republic, and we ask the American people to pray with us and to pray for this House, and to pray without fear. Franklin Roosevelt said, ``All we have to fear is fear itself.'' We need to make wise decisions; not decisions made in haste or in panic.

If we vote ``no'' tomorrow, that is not a vote for no action. A ``no'' vote tomorrow will signal we want a better answer, and we will work here until we get it.

The other night the Senate voted to pass their version of a bill, and the stock market went down. Explain that to me. They passed the bill. It goes down.

[Time: 20:00] I don't think there is any relationship between day-to-day trades, what is happening in the markets and what is happening here. We know that there is a serious issue in our financial system because credit markets are seized up. As others have said, what we can do there is to ask the FDIC to employ its emergency powers, which are already law , and agree to cover all creditors, bondholders and depositors in those institutions and that that will take the fear out of that system because they're scared, too, because they don't know, if they borrow from bank X in another city, whether that bank will be around the next day. Those banks are liquid. In other words, they have money to lend, but they're afraid, too. So we've got to get the fear out of the system. Let us pray to not have fear.

If we pass the bill the administration has sent us, one of the things that's going to happen, plus what they did over in the Senate, is that we're going to add 870 more billion dollars to our debt. We can't afford to do that right now. That is a very bad decision because we are in debt. We will be over $12 trillion in debt. The value of our dollar is already going down. This will push it down more, and our deficit is going up, which is not such a good position to be in. So we need a solution that doesn't raise our deficit by any more.

By declaring that emergency at the FDIC, it gives the FDIC and its bank examiners enormous powers to go around and to try to make the loans that are necessary, to work out real estate loans where those need to be worked out. They can even get into executive compensation, and they can look for fraudulent accounting throughout the country. That's what bank examiners do, and they're really good at it. Ask any banker. We need to enliven that system and make it function.

Then we need to ask the Securities and Exchange Commission, which has moved along this week and has been doing better than it has in the past, to help these banks within their accounting systems give a true value to the real estate assets on their books and not to some artificial index that bears no relation to reality, to what has happened in Cleveland or in Toledo or anywhere else, and to use the private sector as we did back in the 1980s--to heal the system and to use its power and to do it with discipline and rigor, not to take $870 billion and reward those who have had very bad behavior on Wall Street.

I'm sure my dear colleague from California and Congressman Kucinich from Ohio, who has been such a stalwart in fighting for the people of Cleveland and of our country, would agree that the bill they're sending over from the Senate has had no hearings in this House. When we sent our bill over there, it was about that thick. The bill that came back to us today is about that thick. It was so heavy I couldn't even carry it over here to the floor. We have had not hearing one on that bill here in this Chamber. We are not following regular order, and that is not in the interest of the American people. At a minimum, there ought to be regular order with the committees of jurisdiction.

They've stuffed tax issues in that bill over on the Senate side. I understand there are Exxon Valdez provisions. There is even something for wooden arrows for children. There are trade provisions in there, and there is even Puerto Rican rum. How about that one? They've put the Alternative Minimum Tax in there, which sounds great except they didn't have any offsets, so it increases the deficit even more.

We haven't had hearings, so we'll have to do a better job of due diligence here. Really, our leadership should allow us to do that. One day or two days or five days isn't going to make that much difference in what is happening in the markets.

Let me give a point of view here as to one of the things that, I think, is happening in all of this. Why is the Treasury moving this in this way so fast now?

I think it has to do with the fact that so much of our debt has been financed by foreigners and by foreign banks that

[Page: H10692] GPO's PDFthe Treasury is a little bit worried about that as we begin a new fiscal year and that rather than presenting a balanced budget or a budget that moves us to a balance over the next few years that they're giving us more debt on top of old debt, which is a backwards way to help this economy.

This past week, it was announced in Reuters news service that seven banks in China had lost over $700 million because of what happened at Lehman Brothers with its implosion and that the National Bank of China was paying attention to that and that the debt dealings that they were having with the United States, particularly at the beginning of the new fiscal year, which is October 1, had created a bit of tension in that system and that it is actually our deficit and our difficulty in financing that--because we have a President who conducted two wars without paying for them--that our credit situation is not as good as it should be.

There are instruments, we've been told, such as credit default swaps and collateralized debt obligations that have to be covered. Well, let's be honest with one another. If that's what we're going to be doing, then let's tell the American people, and let's get it done the right way. We understand, in this $870 billion that they want to take from the taxpayers, that over half of that money will go to foreign creditors. Doesn't this Congress and don't the American people have a right to know to whom and how much and what this all means and how we got into this situation? Because, if we really don't understand what we're getting into, we can't get out of it. If only a few people know--and this is an inside trade, inside of Washington--and the American people don't understand it and we don't do this together as a people, then how are we really going to make it better unless we all walk together and get through this together?

I have a great deal of confidence in our banking system, and I would encourage and would hope that Secretary Paulson and the chairman of the Federal Reserve, Chairman Bernanke, and the head of the Federal Deposit Insurance Corporation, Chairman Bair, and the head of the Securities and Exchange Commission, Christopher Cox, eat lunch tomorrow. I hope you figure out how to advise the President of the United States because I really do think those emergency powers at the FDIC would give great confidence to the system. When you do that, you will get an inflow of foreign funds into this country rather than the kind of policy you're following now, which is making those credit markets tighter and tighter and tighter in a banking system that is fundamentally sound and liquid.

So pay attention to the booking of those assets through the Securities and Exchange Commission. Help our banks weather this period. Give them some confidence, and help us to heal this in the full sunlight, not in a quick vote that is rushed through here tomorrow.

I want to thank my dear colleague from California, Brad Sherman, who has been a true, true leader in this effort to try to do this the right way, not the fast way. I thank the gentleman.

Mr. SHERMAN. Thank you. I thank the gentlelady from Ohio.

The only way they can pass this bill is by creating and by sustaining a panic atmosphere. That atmosphere is not justified. Many of us were told in private conversations, if we voted against this bill, that, on Monday, the sky would fall and that the market would drop 2,000 or 3,000 points the first day and another 2,000 the second day. A few Members were even told that there would be martial law in America if we voted ``no.'' That's what I call fear mongering--unjustified, proven wrong.

We've got a week; we've got 2 weeks to write a good bill. The only way to pass a bad bill: Keep the panic pressure on.

Now, what has the Senate done to this bill? First, they've added pork to it in the hope that that would buy off some votes. Second, they've created a double hostage situation. Now, we already know that the first bill was a hostage situation. When Paulson announced this crisis, he basically sent a ransom note, and that ransom note read, ``We've got your 401(k), and you'll never see it alive again unless you send us $700 billion in unmarked bills.'' So we had one hostage situation.

There's the AMT patch, a necessary tax provision that Congress passes every year. Without this patch, the AMT tax, which is designed to fall only on the wealthy, will hit another 20 million American households. Everyone knows we have to pass this. We sent it to the Senate for them to pass. Instead of passing it, they created a hostage situation. They refused to pass it. They put it on this bill. So now we're being told, if you don't send $700 billion to Wall Street, we're going to tax 20 million American families in a way no one in Congress wants to do. That's totally phony. If we vote down this bill, the Senate will pass the AMT patch bill that we sent them just like they do every year.

There has been some attempt to tell the American people that this bill isn't going to cost anything permanently because, in 2013, we're going to get the money back from the financial services industry. Nothing could be further from the truth. All the bill says is that the President has to send us a proposal to tax the financial services industry. Now, keep in mind, if the President has any good ideas in 2013, he'll send them to us or she'll send them to us. If the President is only sending us revenue ideas because they have to send them and they don't want to send that proposal, well then, they're going to send it with a note, saying, ``I'm required to give you this proposal, but I think it's a bad idea.'' What do you think we're going to do with a Presidential proposal that is disparaged by the President?

Furthermore, it would be absolutely impossible and contrary to the intent of the bill, contrary to the logic of the bill and contrary to the statutory provisions of the bill to construct a tax that hit only those companies that got bailed out. Instead, the tax is going to hit the entire financial services industry, and a proposal like that is highly unlikely to pass the House. If it passed the House and if it got over to the Senate, 41 Senators could block it, and Wall Street could have enough money to hire 4,100 lobbyists.

Now, why is it that we can't tax the individual companies that are bailed out on some sort of proportional basis?

Well, first, many of those firms aren't going to exist in 2013. Second, we're not even keeping track of how much money we lost on the assets we're buying from Goldman Sachs versus how much money we're losing on the assets we're buying from Citibank. We'll know how much we bought from each of them, but we might buy really toxic assets from one and only mildly troublesome assets from the other. We'll mix them together. Then we'll sell them off and we'll suffer a loss, and we won't know how to attribute that loss. How much are we going to tax Goldman Sachs? How much are we going to tax Citibank? We'll never know how to tax those we'll have bailed out.

Some of these companies we're bailing out are just going to be shell companies, so you know they're going to disappear before 2013, and you know that a tax bill is going to hit similarly sized banks with the same rate of tax: the banks that got a big bailout, the banks that got a small bailout, the banks that didn't get a bailout, the banks that sold us kind of bad assets, the banks that sold us assets that turned out to be worthless.

Such a controversial tax bill submitted under duress by a President is not going to pass this House, let alone pass the Senate, which can stop it with 41 votes. Wall Street gets their money now, and we get it back: never.

Now, as I said, hundreds of billions of dollars are going to be used to bail out foreign investors. That is why my amendment, which easily fixes that problem, has been rejected, because the White House demands that we bail out these foreign investors. That's what they want to do. That's what they promised the Saudi royal family. That's what they promised the Bank of China. Those promises will be honored with the tax money squeezed out of the American people.

They talk about executive compensation being controlled in this bill. They do put some controls on some bonuses being given to some departing executives--great--but they allow $1-million-a-month salaries. If some executive says, ``well, you know, you wanted to pay me a good bonus on top of my $1-million-a-month salary and now the bonus formula is being changed a little bit,'' the company can say, ``You know,

Source: Congressional Record at http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2008_record&page=H10693&position=all">A?

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