mr. president. i'm delighted to be here this morning, and i'm very anxious to get started on voting on amendments so we can tackle this issue of wall street reform. we just have to keep an eye on what happened to our economy because wall street had no reasonable regulation, markets were operating in the dark. there was very little fiduciary responsibility involved and all of this gambling with credit default swaps and c.d.o.'s. i'm reading a book called "the big short." if anyone wants to try to understand what happened, just read that. it's unbelievable what happened with derivatives all operating in -- in the dark. and i want to say to senator dodd how much i appreciate the

work that he has put into this bill. and just to put it simply what the bill does is ends taxpayer bailouts, flat out. and that's why i was shocked when members of the senate on the other side of the aisle came down to the senate floor and started criticizing the bill saying it didn't end taxpayer bailouts when that's what it did. and that led me to think that i would like to work with senator dodd on an amendment that clarifies this main point in the bill. senator dodd and his staff, and i worked with the obama administration on it as well, said let's sit down and work it out. so we have a very strong amendment here that is not a sense of the senate. it is real law. it is strong law and i would hope it would pass -- i say to

my friend senator dodd i hope this would pass by a huge number of votes. what we do here -- and it's some depth in part c, taxpayers shall bear no losses are from the exercise of any authority under this title. that isn't saying they shouldn't bear a loss. it says, taxpayers shall bear no loss. they shall bear no loss. and the rest of it basically says no company is going to be kept alive in this bill with any taxpayer money if -- if a company is in trouble and they need to be liquidated, then the funds that are used will be recovered from the disposition of assets of such financial company or shall be the responsibility of the financial sector through assessments. that's very similar to fdic. as we know, when we put our hard-earned dollars into the

bank, we're covered now up t to $250,000 because there's an insurance program which is paid for via an assessment on the banks. it's called fdic. and we all know because we worry about that. if there was anything that was learned from the great depression, is that there was a run on the banks. and guess what? the banks were out of money and people literally lost their world. so in those years a long time ago fdic insured. very important. we're doing the same thing here. we're saying that if there's a liquidation required of some of these hot shot firms that continue to gamble, that continue to take risks and something goes wrong, they're not going to be kept alive. they're going to be put to sleep and the money that is expended to do that will come from the financial sector itself. and taxpayers, again, shall bear

no losses from the exercise of any authority under this title. mr. president, what else does the dodd bill do? it ends taxpayer bailouts, and with my amendment, that's going to be even clearer. it puts a cop on the beat for consumers. why is this important? because the people who were trampled upon during the whole wall street crisis were middle-class families that depended on these big firms to protect their pension funds to protect their -- funds, to protect their associates that they might have had in a mutual fund. instead all that went out the window. and we need to also have a cop on the beat to look at credit card companies and the kinds of things that they do that harm our people.

the third thing, it brings disclosure to dark markets. the bill eliminates loopholes that allows reckless speculative practices to go unnoticed. and it brings real regulation to the derivatives markets and a shadow banking system that grew up around it. now, these kind of instruments, as they're called, derivatives, they're based on -- let's just take an example of a bunch of mortgages that are packaged together and sold. and somebody came up with a great idea. well, maybe we should take insurance against them going broke and they played both sides of it. and they had derivatives on derivatives on derivatives. and the house of cards came down. we want disclosure to these dark markets otherwise the regulators

simply don't know what's going on. risky behavior on wall street will be curbed. there are strict new capital and borrowing requirements as financial companies grow in size and complexity. there's restrictions on proprietary trading. that means a bank trading for their own interest. we had circumstances where a bank was telling its customers to buy a stock or a bond and they were shorting -- they were making a bet that it would go down while they were selling it to people and said, oh, it has a great future. there is something just so unfair about this. and, frankly, corrupt about this. somewhere the fiduciary responsibility here? how do you go out and tell your best customers, hey, this is good. we're going to go forward, buy this, and then go back to your

office and short it so you can make money on it collapsing. there's something very wrong with that. we have lost our way. they have lost their way. we have protection against securities market scams, improvements at the s.e.c. where we'll have the office of credit rating agencies that will strengthen the regulation of credit rating agencies, many of which fail to rate risky financial products. you know, moody's one example, standard & poors is the other. and they said, oh, this is a triple -- aaa. these assets based on all these mortgages, this is a aaa when they knew it wasn't. conflict of interest. they were getting paid by the people who wanted them to come out and say they were rated aaa.

there's something awful about this. if you cannot trust a rating agency, how do you know what you want to buy for your portfolio? i don't care if you're a small investor or institutional investor. an investor who is investing, say, for a pension fund for a company that you work for. we have to have, i think, even greater oversight over these rating agencies that is in the -- than is in the bill. and i applaud what's in the bill. i'm going to offer something that really holds these people accountable. again, if you read the book i'm reading, you realize how the people who work at these rating agencies are really -- were just doing the bidding of those that wanted to get a aaa rate. so we end taxpayer bailouts in this bill. the boxer amendment's going to

ensure that's so clearly stated. we put a cop on the beat for consumers. we bring closure to the formerly dark markets. we curve risky behavior on wall street because we require them to have more capital, less gambling. we create an early warning system with a financial stability oversight council to make sure that we see trouble coming before it hits. and we protect against security market scams by going after these rating companies and saying, hey, you have a responsibility to be honest when you rate an instrument. that it shouldn't be rated a certain way because the person who's paying you wants it rated a certain pay. that should be criminal. and i think it's going to be very clear, as we get into this bill -- and i'm a little surprised it's taking so long. i say to chairman dodd, i'm a little surprised it's taking so long to get a vote on the

simplest amendment of them all. put that back up. what is the problem here? if people want to talk about making this stronger, let's talk. but don't hold this up. and i would ask my friend, do we have any agreement yet on voting on the boxer amendment which is so clear. here it is on one board. this is the amendment. do we have an agreement yet? the presiding officer: the senator from connecticut is recognized. mr. dodd: i've read your amendment so many times, i can -- i can cite it verbatim. i've mesmerized your amendment. it's only four sentences. we raised it with them. as i understand it, i don't hear any on ex. someone said, i -- accept it. someone said, i think my friend wants a vote on it. my hope is that we would cast a vote on this at 2:15 when we frurn our respective -- from our respective caucus lunches.

so i'm waiting to hear from my republican friends and colleagues because i can't make the unanimous consent request without them in the room. i congratulate her on it. the presiding officer: the senator from california is recognized. mrs. boxer: i want to thank my colleague. i want to say, the reason it's important to have a vote on this is because for days and days and days, my friend, the senator from connecticut, my friend, the senator from virginia, were down on this floor defending this bill and making it clear that there -- this would finally put an end to too big to fail. that, in fact, taxpayers are not going to be on the hook. we're going to wind these companies down and they're going to have to be gone. mine they're going to go to -- i mean, they're going to go to sleep. they're going to be gone. they're going to be liquidated and taxpayers are going to be made whole. this is clear. our colleagues on the other side were all over national tell vision. i don't know how many times they said, this bill is ensuring that

there's going to be more taxpayer bailouts. that's why i wrote this. and, you know, it seems to me a little odd that we're just waiting and waiting since our friends said they wanted an amendment like this, why don't we get started? there are lots of amendments on both sides of the aisle. some of which will make this bill stronger. in my opinion some of which will make this bill weaker, in my opinion. and we'll do what the senate does. we debate these issues. i know my friend is waiting. but it just seems to me if we go back to this -- this crisis. and i'd ask to show those charts, we cannot sit around here day after day and waste me. i mean, these are some of the headlines we had "economy in crisis." "what now?" this is what we saw. you know. we have another chart that brings this up.

"u.s. consumer sentiment decreases to 28-year low." "jobs, wages, nowhere near rock bottom yet." what a mess. "wall street crash leaves new yorkers in the eye of the hurricane." this is just a smattering of these headlines. and we have some more to share. "where do we go from here? nightmare on wall street." mr. president, this is what country went through. i know we want to forget it. we never want to have it happen again. but we can't wish it away. "nightmare on wall street. where do we go from here?" today we're ready to answer the question. no more nightmares and no more taxpayer bailouts. and no more gambling. now, will this bill solve every single problem?

no, there will be people who will thinking is else up. but here's the good news about this bill, it puts a cop on the beat and any of these new ideas that come to the floor, these new instruments, these new derivatives, all of this will finally be under the watchful eye of a consumer regulatory agency that only has one thing on its plate, protecting consumers from the kind of ripoffs and the gambling and the callous disregard for morality that we saw on wall street. the so i say to my friends on the other side, let's go. let's do this. let's get started. let's have the senate work its will and let's be able to tell the people of this country that in a bipartisan fashion we took a stand against the nightmare on wall street and we basically said those days are gone and we'll get back to sensible rules of the road. you know, i would close with this, mr. president, a lot of us

i think were interested in watching the kentucky derby. a few minutes of the most exciting sport. and i thought to myself, as i watched, that there were rules of the road in this sport. now, it's all about gambling. people just out an out gamble. there's no hiding it. they go out and gamble. they put the dollars on the horse they choose. but there are rules of the road. you can't have a horse running that is -- has drugs -- has been drugged. you can't do that. you can't have a jockey in that race who uses foul play to knock over another jockey or run in a fashion that would disqualify him. so even in a sport like horseracing that is out and out gambling. there are rules of the track. rules of the road. so it seems to me on wall street

where you're dealing with the life savings and the hopes and the dreams of our people and of our businesses and of our children, that there need to be reasonable rules of the road and no more taxpayer bailouts, so let's get started and vote aye on the boxer amendment and let's make this bill an even better bill. it's a terrific bill. we can make it even better. thank you very much, mr. esent. i would yield the floor. a senator: mr. president? the presiding officer: the senator from connecticut is recognized. mr. dodd: aga, let me commend my colleague from florida who has been very patient. she has done a very good job. i describe her statutory language as sort of the exclamation point in this title. as the amendment reads, the very first line of her amendment -- again, i don't have to read it. at the end of this title, include the following. so it's at the end of an entire title that we mechanically -- because it is complicated to get

this right, so we really do have a winding down and a disposition in receivership and bankruptcy, these institutions. but in case anyone had any doubts about what all of that language does, your amendment says let me put it in simple english for you. the word "shall" is in every single sentence. no "mays" are in that language. there shall be liquidation. it's very clear what we're trying to achieve. i know of no one here that objects. my hope is again we're on the bill. we ought to be able to start here on a note. we're going to have times of significant division and debates on this bill coming up. but i thought it might be worthwhile for the american public to witness a senate that could actually as it begins the debate do so with some unanimity. i know that doesn't happen with great frequency around here. the idea we might at least start the debate on that basis made

some sense to me. our hope is our colleagues would agree with that conclusion and allow for this amendment to be voted on as soon as we come back from our respective caucus lunches that we hold every tuesday and then move to other amendments hopefully where there is some agreement. again putting aside and demonstrating again we're not fighting every single issue with each other. there is a lot of agreement over what ought to be in our bill here to make this a stronger bill and a better bill. i will be happy to yield to my colleague. mrs. boxer: the reason i did this, frankly, was because the other side seemed to be misunderstanding what this bill did, so i was hopeful that they would just say terrific, now it's clear. "no losses to taxpayers. taxpayers shall bear no losses from the exercise of any authority under this title." i understand that senator kyl said yesterday this was a sense of the senate, didn't have the force of law. no, it is clear, it is not the sense of the senate. liquidation required, recovery

of funds. taxpayers shall. all funds expended shall. ther it's real. and so that's why i'm hopeful that if we can get started with a bipartisan vote, it will make the life of -- of our chairman a lot easier because at least we would come forward with something that we could stand together on, and i just want to thank you so much, senator dodd, for working with me to make sure this was clear as a bell, because as you say bills are complex and people come out here and say well, why is this bill 800 pages? well, it's complicated because you have to amend language in so many parts of the federal law, but this is clear. we sum it up. we sum up the title in this way, and i'm excited about having a vote on this. i will be back after the luncheon hour to, if i need to, make the case again. not that my colleague hasn't done it for me, but i just want

to lift a little bit of the burden off his shoulde, so we'll be around to do that. thank you. mr. dodd: mr. president, i thank our colleague. let me if i can, mr. president, -- i have four unanimous consent requests which have been agreed to by the majority and minority leaders. four unanimous consent requests for committees to meet during today's session of the senate. they have the approval of the majority and minority leaders. i ask unanimous consent that these requests be agreed to and that these requests be printed in the record. the presiding officer: without objection, so ordered. the senator from virginia is recognized. mr. warner: i want to commend my colleague, the senator from california, for her amendment. as one of the people that was charged by the chairman to work on this section of how we make sure that we put appropriate barriers to firms getting too large and barriers to firms too big to fail, and then should

they fail, making sure that taxpayers are never on the hook again. i think the senator from california's amendment does add that emphasis. we took the chairman's charge at his word, and there is clearly an area where there was complete bipartisan agreement. i had the good fortune of working great lengths, as my friend the colleague, the senator from tennessee, on this issue. we put a strong preference in this bill toward bankruptcy as the normal process and even put in place a whole new series of requirements for large firms, particularly these internationally significant firms to come forward to the regulators and describe how they can unwind themselves through an orderly bankruptcy process, bankruptcy being the preferred process. but in the event, because as we saw in 2008, there may be times when even with the best-laid plans you reach a level of crisis that would require a resolution. if there is resolution,

resolution should not be propping up firms the way we did in the fall of 2008. resolution should be a death knell for any -- any firm that is put into that process, it should be something that any logical management team or series of shareholders would always want to avoid at all costs, and we put forward a process, whether it is prefunded or postfunded. i think legitimate folks can disagree on which is the better option. but at the end of the day, if there is any funds used -- if there are funds used to make sure that we can unwind this firm in an orderly process so that it doesn't cause any further systemic damage to the overall financial system, and again indirectly to the american taxpayer, and if the financial system is shored up by that action, that any costs that are not recouped. if this firm goes out of business, as this firm is being put out of business, if there are funds suspend -- expended

and they have to be recouped from some source, that source should not be the american taxpayer. i again want to commend my friend, the senator from california, for her efforts with this amendment. it adds that exclamation point. i again can't imagine that my colleagues on the other side who i know share the same view, will want to make sure taxpayers will never again be exposed to the mistakes made by wall street. i think this amendment might be a good place to start this debate where we would have that common cause. i thank the senator from california for the amendment and yield time. and suggest the absence of aquo. the presiding officer: the clerk will call the roll. quorum call:

a senator: mr. president? the presiding officer: the senator from connecticut is recoized. mr. dodd: i ask consent that the call of the quorum be rescinded. the presiding officer: without objection, so ordered. mr. dodd: i ask unanimous consent that the senate stand in recess until the hour of 2:15 p.m. the presiding officer: without objection, so ordered. under the previous order, the senate shall stand in reces until 2:15 p.m.

>> the number of senate primaries taking place across the country today. in indiana, the battle for the republican nomination showcases former senator dan coats who is facing four challengers including former representative john hostetler and the state

senator. in ohio, ohio lieutenant governor is battling for the democratic nomination. former representative and george w. bush robert budget director rob portland is the republican nominee. democrats will choose their candidates to face off against republican candidate robert byrd. president obama praised the citizens of new york as well as local and federal authorities for their response following a failed car-bombing attempt in times square. their actions may have saved hundreds. a law-enforcement apprehended a suspect. a pakistan-born u.s. citizen was attempting to leave the country for dubai. you can watch the president's comments and read statements by u.s. attorney general eric

holder, the fbi, and the attorney's office for the southern district of new york all at c-span.org. >> i'm confident that we can come up with a nominee who will gain the confidence of the senate and the confidence of the country. >> as the president considers potential nominees learn about the nation's highest court through the eyes of those who served there in cs man's latest book, the supreme court, 381 pages of history, photos, and interviews. the supreme court, available in hardcover and also as an audio book. c-span2, weekdays live coverage of the u.s. senate. connect with us on twitter, facebook, and youtube and sign

up for a scheduled alert e-mails. >> next a portion of a hearing on financial fraud and criminal penalties. connecticut's state attorney general richard blumenthal, attorneys, and law professors. paul specter chairs the judiciary committee. we will show you as much as we can before the senate's return at 2:15 eastern. [inaudible conversations] >> the subcommittee on criminal law will now proceed with this hearing on the issues of wall street fraud and what is an appropriate governmental response. the issues have come into sharper focus recently with the filing of charges by the

securities and exchange commission against goldman sachs. we have seen an economic crisis gripping the country for many months. enormous loss of jobs, enormous loss of gross national product, problems that are worldwide, and serious issues have been raised as to the connection between the so-called mortgage bubble and what has happened. the allegations by the securities and exchange commission, they have focused on packaging of mortgages, sub prime mortgages bundled and

securized with the stock being sold backed up by those sub prime mortgages. the allegation has been made that the lawyer who put together the mortgages then engaged in this short selling. the question arises as to what the duty, if any, is owed by the participants in this kind of arrangement where investments are sold. what reliances there are on the part of the purchasers that there is a sense of a solid investment while at the same time there being sold short which is a bet that they will go down in price. so defenses have been raised, but we are dealing here with sophisticated buyers. we are going to inquire into that. there are complicated arrangements with a variety of definitions and classifications

of different duties owed as to someone who is defined as a broker, a dealer, investment adviser. the final resolution of duties really depend upon the, how congress sees it. we have the authority to define those relationships once we understand the extraordinarily complex field. i have long believed that it is insufficient to have fines for fraud, for corporate fraud if you have a fine it is calculated as part of doing business, and even where you have billion dollars fines and it's a relative matter where you have corporations which have $84 billion in net proceeds and

a very, very substantial profits. i had experience as a public prosecutor years ago in child and criminal convictions work as an appropriate measure of punishment. worked for others. this subcommittee has the responsibility for making recommendations to the full committee in terms of the full senate as part of the buds that the package as to what kind of penalties ought to be imposed. the assistant attorney general had a conflict. we will have an afternoon session to hear his testimony. we have very distinguished witnesses and a great deal of testimony, so i will keep this opening statement three. i turn now to my distinguished colleagues, senator kaufman.

>> mr. chairman, i want to tell you i have rarely seen a hearing that had better timing than this one. you talk about it being in the right place at the right time. the chairman has been one of the people that has constantly looked out for how we can change things, make things better. >> thank you, mr. kaufman. our first witness is ms. barbara roper, the cio, an alliance of 500 pro consumer organizations still representing approximately 500 individual consumers. ms. roper has a expensive consumer conducting studies of abuses in the financial funding

industry and is an adviser on financial reform. earned her bachelor's degree from princeton university and has frequent witnessed before congressional committees. we welcome you here, ms. roper. i look forward to your testimony. >> thank you. thank you very much. mr. chairman, members of the committee, i greatly appreciate the opportunity to testify before you today on an issue that i have been working on since i first joined cfa in 1986, which is believed to hold brokers to a fiduciary duty to act in the best interest of their customers. our primary focus has been on protecting average retail investors. as last week's hearing in the permanent subcommittee on investigations made clear, institutional investors are also in need of protection from wall street's increasingly predatory ways. it is that aspect of the issue of will be talked about today. in examining the root causes of the financial crisis many have

observed that wall street firms no longer primarily exist to serve the needs of their customers. the goldman sachs executives who testified last week seemed bewildered that anyone would expect them to do so. in their world it appeared that everyone takes it for granted that customers who can't look out for their own interests aren't simply sheep waiting to be shorn, and the only imperative they recognize is the imperative to maximize the firm's profit. while no single approach can offer a panacea, the extending of fiduciary duty to brokers has the potential to significantly improve the culture on wall street. so what would it look like if these firms were required to act in the best interest of their customers? for starters, it would be considerably more difficult to sell a product that you have specifically designed in order to move risks of your own balance sheet in order to make a bet against that.

at the very least you would have to be at least disclosed. the reasons for believing they were in the best interest of your customer and the risk that the client might be exposed to. providing boilerplate disclosures that he might be either long ng or short. the transaction would not suffice. the firms were trading practices generally would have to be accompanied. the fiduciary duty could help to significantly rain in the kind of abuses that are highlighted in last week's hearings. fiduciary duty could play a similarly beneficial role in targeting the kind of abusive practices that have been used to sell local governments all around the country on

derivatives and other swaps arrangements. for example, it is hard to see how an investment bank could sell a swap designed to help the county had its interest-rate risk that expose that county to greater risks, risks that were hard greater than the risks that they were hedging. and what about the multibillion-dollar investment bank? at the very least all of these features would have to be disclosed including such factors as the firm's financial interest in the trade and the maximum exposure of the customer would have to be disclosed under fiduciary duty. if the customer would be better off in a traditional fixed-rate or variable rate bond that is what the investment bank would have to recommend. in considering whether to expand fiduciary duty congress would need to ixion duane and to what the duties he duties should app.

the legislative proposals currently offers several different approaches. requires to adopt a fiduciary duty for brokers when they provide personal investment device and permits the agency to extend that fiduciary duty test to show investors. unfortunately the senate bill which started out stronger than the house bill now does nothing to strengthen the fiduciary duty for investment device. two senators have indicated they plan to offer an amendment to fix that problem by substituting the house language, which is something that cfa strongly supports. on the other hand, the derivative package in the senate bill does include a fiduciary duty for swaps dealers in their dealings with government entities, pension plans, endowments. this provision fills an important gap.

furthermore, because derivatives are among the most opaque and complex investments they represent an area where all but the most sophisticated institutional investors are at an extreme disadvantage with their dealings with wall street and most in need of fiduciary protection. as with any regulation it will be only as effective as the regulatory enforcement the backs it up. fines commensurate with the damage of the customers to hold supervisors accountable for the actions of those they supervise and to pull the licenses of individuals who commit serious violations. given the potential profit at stake, as i have noted. fines are rarely going to be heavy enough to serve as a key deterrent. holding out the possibility of jail time has the possibility to provide a deterrent. willful violations would set

appropriately high bar that only the most egregious abuses result in jail sentences. we believe expanding the fiduciary duty and imposing criminal sanctions for willful violations could serve as a truly effective deterrent to the kind of abuses that brought the global economy to the brink of collapse. thank you. >> thank you very much, mr. roper. our next witness is mr. andrew weissman, firm of jenner & block, co-chair of the defense unit there. served as director of the enron task force, chief of the criminal division of the united states attorney's office for the eastern district of new york, later special council to the director of the fbi. a graduate of columbia law

school. we welcome you here, mr. weissman. the floor is yours. >> thank you, senators. as the former director of the enron task force i see certain parallels between their response to enron and the interests being addressed regarding the financial crisis. now, as then, for instance, we learned that the stability of institutions we regarded as robust maybe illusory. while comparisons are attempting we have yet to see in the current crisis the kind of systemic fraud that occurred at enron. i am not convinced that all that all or even the core of the conduct that we find most troubling on wall street now is properly considered criminal. of course wall street did not immune from criminal l activity.

to the extent there is misconduct there are abundant tools at the government's disposal to address the problem now. thus even if jail time for certain wall street misconduct is the best prescription for the current crisis, that goal does not require additional federal crimes. i will make three points. first, before we add more criminal statutes to the federal code we should examine those that are already available to prosecute financial crime. here an anecdote of my own may be illustrative. i was a federal prosecutor for 15 years. when i switched from prosecuting organized-crime bosses to going after financial fraud on wall street i sought advice from a senior prosecutor. his advice to me was, get to know the mail and wire fraud statutes really well and don't

worry about the rest. that is all embroidery. that advice was a recognition that in our technological age it is hard to see what criminal conduct at a financial institution would not satisfy the jurisdictional mail or wire fraud statutes. any e-mail or sec filing. thus it would be covered by at least one and probably several of the existing federal criminal statutes. if this statement is not material or the intent not willful it is not evident the conduct can or should be considered criminal. another point that i'd like to make is that a statute that criminalizes the breach of fiduciary duties could be struck down by the court as impermissibly vague.

increase into the existence and scope of fiduciary duty can be a highly specific project. if fiduciary duties are imported their vagueness may take on constitutional significance. the supreme court is currently considering this issue in three cases involving the so-called services stat sheet statute wits mail. instead to the sum of criticizes as everything from defrauding a client to an employee calling in sick. breaching fiduciary duty. would it be a federal crime for a broker to fail to read diligently in a prospectus or call a client daily about the market? would every breach of the duty of care now become a crime? giving the pending supreme court decisions it would be wise to

wait at least for the court to speak before initiating the legislation criminalizing conduct in this area. but there are other reasons not to leap to criminalizing conduct that is not now the subject of even civil liability. the line separating conduct from all others is the boundary. and should be consulting need to be reserved for the most egregious conduct. it would define the scope of a specific fiduciary obligations than impose a vaguely criminal structure that would lead the government with unwanted discretion and the public without the certainty of clear rules. finally the case for regulatory weapons, new ones, has not been made. current law provides civil regulatory agencies with

numerous tools. executives and brokers can be barred from the industry by the sec. corporations can lose their license. corporations' profits can be wiped out by both the sec and the department of justice. to the extent that one believes the sec, in spite of contrary examples, has been a toothless tiger, the remedy is to encourage the sec in the civil division of the department of justice to make better use of their enforcement authority not to rush to criminalize new contract. thank you. >> thank you, mr. weissman. our next witness is mr. damon silvers, associate general council for the afl-cio where his responsibilities include corporate governance pension, general business law issues. he was part of the afl-cio legal

team that won severance payments for laid-off workers from enron and worldcom. he graduated from the harvard law school and has an m.b.a. from the harvard business school. welcome, mr. silvers. we look forward to your testimony. >> thank you. thank you and good morning, chairman specter, senator kaufman, and staff. i am damon silvers. i am now the policy director of the afl-cio. i serve as the deputy chair of the congressional oversight panel for t.a.r.p. my testimony before this committee is on behalf of the afl-cio and not the congressional oversight panel, its staff, or its share. the financial crisis that began in 2007 has had a devastating effect on working americans. the u.s. economy lost 8 million jobs. pension funds saw their asset values decline by $3 billion, a

drop of 30%. the markets have yet to fully recover. mass home foreclosures which not so long ago were a distant memory of the great depression now seem to be a permanent feature of american life running this year at the rate of 2.8 million foreclosures a year. finally the american public had to foot the cost, yet unclear, of rescuing the financial system. as a general matter the afl-cio believes proper structuring is key to protecting the public from the consequences of financial boom and bust cycles. we support strengthening and passing the wall street accountability act of 2010. we have always been skeptical of the line we heard from then president bush after enron that everything was fine, just a few bad apples and the barrel that needed to be weeded out and prosecuted. in that sense jail time or the threat of jail time is not an adequate deterrent for financial misconduct, nor is the criminal

law in and of itself adequate to policing our financial system. however, we also believe the fundamental fairness of our society is the issue when we look at the application of criminal law to securities fraud and the type of business cases. there is a public perception that has some justification that a small number of wealthy and powerful did vast damage to our country and the lives of millions of families. a double standard with respect to willful illegal activity should not be acceptable in a democracy. now recently we have seen action by the securities and exchange commission on a major case related to the financial crisis involving goldman sachs which barbara roper referred to. the justice department has opened a criminal investigation. the legal arguments associated with this case have revealed a paradox the implications and criminal law. many americans seek financial advice from their stockbrokers,

yet the reality is the legal obligations are broker are simply a limited to recommending suitable and reasonable things for their clients, not putting their clients' interests first. there is no obligation to disclose conflicts of interest. afl-cio provides a clear standard as was provided in the original draft to chairman dodd's wall street accountability act. i have attached a letter, which discusses this issue in further detail. we particularly support requiring dealers in derivatives when dealing with institutional clients such as pension funds and municipalities to meet a fiduciary duty of standard. in the context of adopting such a clear, uniform standard congress should adopt companion language and the criminal code adopting a willful breaches of fiduciary duty by brokers much as the criminal code addresses willful acts of securities fraud

or intentional tentional breachf fiduciary duty. nothing particularly exotic. it is a well-known feature of our pension law today. there is another gap in our system of accountability for wall street, a gap that you, mr. chairman, have taken the lead in addressing, for which we commend you, aiding and abetting securities fraud. well that is a criminal issue it has consequences for the enforcement. the effective deterrents of both civil and criminal securities fraud has always been, in part, reliant upon the ability of investors themselves to pursue those to defraud them and thus to draw the attention of the sec and the justice department. this chain does not occur. the afl-cio has long taken the view the financial system needs to be regulated, not with an assumption that the system is

populated by villains, but ordinary people. strong, comprehensive regulation is the right approach to such a system, as it was in the days when our securities laws were first enacted. the criminal law is a necessary part of such a system, as my fellow witnesses have pointed out for the most egregious acts. thank you very much for the opportunity to testify. >> thank you, mr. silvers. we'll proceed now with a 1 0-minute round of questioning. we may have to modify depending upon how many centers arrive in terms of the hearing. we will start at ten minutes. ms. roper, when you classify goldman sachs, how would you classify goldman sachs on the scale of definitions in the transaction being pursued by the

sec? >> well, in the transaction, the abicus transaction at the base of the sec case the issue in dispute is a very narrow technical one. did goldman sachs when they supplied all of that information about acas involvement in selecting the mortgages misrepresent the facts by leaving out john paulson's role? you know, i don't have the expertise to judge the decision. i know that in the series of transactions that were described in that hearing the goldman s achs executives continually said we are just market makers. we are providing liquidity and bringing buyers and sellers together. but the evidence in their e-mails, the evidence suggests that is clearly not the role. there were not limited to playing that role. they were actively moving securities off their books on to the books of their customers. there were looking to get out

from under arrest. they were packaging these products or a particular intent, and in several cases they specifically stepped back from their role of market maker. for example, when they had a customer who wanted to short a stock arguably a market maker would bring those customers together. they retained the right to short it instead. when they had customers who wanted them to support a transaction they refused because they knew that it was a bad bad deal. so their conduct, their conduct in many of these instances may well have been perfectly legal, which is the first problem we have to solve. we need to create an obligation for brokers to act in the best interest of their customers to recognize that the notion in light of the complexity and capacity of products today, the notion that institutional investors can look out for their own interest is certainly a fiction.

>> ms. roper, what standard applied to goldman sachs in this transaction, what duty of care? >> well, if they were acting as a broker and if this sale was not a private placement -- well, even if it were a private placement that would have had a suitability obligations. they would have an obligation that particularly in this context is really barely removed from a fraud standard. they would have needed to make sure that the customer was committed to engage in this transaction. they would have needed to make sure that the customer wanted a security that was roughly resembling what they were offering. they would not have had to take the next step of saying, among all the things i have available to sell that fills that bill, that the says coalification, is this the one that is best? >> ms. roper, would you say they

have a duty, as you characterize it, to act in the best interest of the customer. >> well, i think they have a moral duty, but not a legal duty because of a basic gap in our current laws. >> i understand senator kaufman needs to get to the floor. >> i would like to deal with one. mr. weissman raised a good point. the regulators have the ability to do this. we need to change the law. i would like to ask each one of you, isn't our responsibility to make sure this does not happen again? not because they were bad, they just didn't think that we should have laws. they were quite fair about that from top to bottom. one of my concerns is senator

specter's idea of criminalizing this thing. i agree with what mr. silvers statement. there really is a crisis in this country. i don't think it is a popular statement. so basically i'm for doing something. don't you think it is important that the congress give the regulators clear law on this since the regulators have the ability to do so many of these things? disregard the one question of criminalizing. ms. roper, mr. silvers. >> i agree with the sentiment, and i agree that there is an issue with respect to the public viewing there being two worlds and two different systems that are going on. but i think that creating a new criminal statute which is

similar to what was done post enron won't cure the problem. you can look at goldman, and i don't think we know this. if there was a misrepresentation in terms of the disclosure that can be prosecuted simply, and if it is intentional that can be prosecuted criminally. ..

>> i mean, the number of things that you, the number of things that went wrong to create this crisis is really sort of mind-boggling. and in addressing it, i mean, yes, you have to, you have to regulate where we've in the past chosen not to regulate. so, for example, in the over the counter derivatives market. where there are things that weren't illegal that should have been illegal, we need to make it clear they're illegal, and i think the conduct in this area is one of those areas. where the system didn't work because there were sort of structural flaws in the system because we had institutions that were too complex to be effectively regulated or to be handled when they started to fail, we need to fix those aspects of the problem. and, yes, we need to make it clear to regulators what it is that we expect them to do in enforcing the laws, and then we need to hold them accountable for doing it. one of the biggest concerns

about this legislation which is strongly supported is that it relies for its success on regulators to do effectively what they did very poorly in the run-up to this crisis. so there is a job to be done after the legislation is passed in holding them accountable and providing them with clear guidance in terms of the laws you expect them to enforce makes that easier. >> mr. silver. >> make two points, one about the specific legal issues involved in the broker dealer area and what the problem is. the problem lies in what my fellow witness, mr. weissman, said about a misrepresentation. the -- my understanding of the goldman case in a nutshell, it's like if you went to buy a car and you said to the dealer, is this car safe? and the car dealer says, yes, the car is safe. and the dealer may or may not have made a misrepresentation to you. but what the dealer didn't tell you is that the car has been

selected for you by someone who has taken out a life insurance policy on your life. okay? now, not telling you that is not a misrepresentation. i don't know and i think no one in this country at the moment knows whether not telling you that in the context of a derivatives transaction by a brokered dealer constitutes fraud. that's going to be the summit of extensive -- subject of extensive litigation. it's unquestionable, though, if we had a fiduciary standard, any fiduciary standard that not telling you that in that context would breach that fiduciary standard. the criminal issue is if you didn't tell somebody that intentionally, right? if you had e-mails saying, oh, you know, we better not tell the customer what we're doing. because if they found out, they would behave differently, and we really want them to buy this and that sort of thing. if you have, if you have that

type of intentional, willful conduct should that be a crime? i suspect if you think about it in the context of the auto analogy i drew that most of us would feel that feels like a criminal act. the point of my testimony is that it's in order to have sort of a consistent fabric of the law willful, intentional, egregious breaches of responsibility in general are a crime. now, senator, you raised the broader and more difficult problem of what do we do about regulators and enforcement agencies that don't do their jobs? i think there's an easy answer and there's a hard answer. the easy answer is we ought to at least fix the structural problems that make it very unlikely they will -- [inaudible] the afl-cio's view is that it's dysfunctional to ask prudential regulators to protect consumers, that those two missions are

profound conflict and we support an independent consumer protection agency for that reason. so that's a structural fix. we don't view the sec has having, the securities and exchange commission as having a structural problem. we are pleased with the general direction of its leadership, but i think we have to recognize that as long as large financial institutions wield the kind of political power that they do in our society currently, that the efficacy of our regulatory agencies is always in jeopardy. and i think that's one of the reasons why the afl-cio very strongly supports your efforts along with senator brown's to do something about the size of those institutions. >> okay. i just want to say that we had the meltdown in 1929, 19 # 3 we came and passed good laws, hard laws, glass-steagall and others that lasted for generations. i think the chairman here, i'm going to co-sponsor the bill. i think the chairman's on to something in terms of the fact -- and i don't feel like a populist when i say that.

the fact that the vast majority of americans could not understand what goldman sachs was doing in testimony but everybody that knew and follows knew what they were saying, and it all had to do with this broker/dealer relationship. and i think every single person i've run into since this hearing says that was wrong, and we know that's wrong. it's potter standard. we know it when we see it. and guess what? if i'm an auto dealer and i do that or someone with another business and i do that, i'm basically, you know, misrepresenting what it is that i'm doing, that the other side, i don't let them know what my real personal decision is, every american knows that's wrong. and just about every other industry in business we're in, if you do that, you go to jail. so i support -- i don't think that's -- i do not believe that's populism. the people that i talk to that are upset about it are not populist or anything else. the people i talked to said it's wrong, i know it's wrong,

everybody knows it's wrong. you should go to jail when you do something like goldman sachs did. they can't two to jail now because it's not against the law, so, mr. chairman, i support totally what you're doing. i think we need strong laws. i think that we need some kind of a criminal statute to deal with this. >> thank you very much, senator kaufman. ms. roper, we were on a point before i yielded to senator kaufman where i was asking you whether you thought that goldman sachs acted in the best interests of the customer. >> no. i mean, i don't think you can remotely conclude from the evidence that's been put forward that they were looking to act in the best interests of the customers or recognized any obligation to do so. >> mr. weissman, what duty, if any, do you think goldman sachs owed to the customers? >> well, i don't think we know yet enough about the intricacies

of that case. but one thing that we do know is the laws that they are currently subject to. if they, in fact, misrepresented the role of one of the people who was going to be influential in picking securities in the deal, then that is currently a civil and criminal offense, criminal, obviously, if it's done with the requisite intent. >> well, what if it's a failure to disclose that participation? >> if there was no misrepresentation and they simply did not disclose it but they were serving as a market maker, then that is something that is legal. >> do you think congress ought to change that if that conduct is legal? >> no. i don't. i think that there is a place for caveat emptor. if i, as a buyer, want a

heightened duty at a financial institution, there is currently a clear mechanism for doing so. you can have a discretionary account. you can pay that financial institution to be an investment adviser and have them, you can choose to have a different type of relationship where you are not going to just give the institution instructions and then they have a fiduciary duty currently to carry it out and to offer you suitable securities, but if you decide to have a relationship where they are going to be exercising any form of discretion, then there currently is a fiduciary duty requirement certainly in new york -- >> well, let's explore that for just a minute. is there no implicit representation when goldman sachs sells these securities

that goldman sachs does not have an intent to bet against them to, in effect -- >> um -- >> wait until the question's finished. >> sorry. >> wait until goldman sachs is, in effect, of a mind that these securities go down in value when you talk about a misrepresentation, how would you distinguish that kind of mens rea that the value's going to go down according to goldman sachs? isn't that really a misrepresentation? >> i think that's a great question, and i think it's very fact-specific. if the issue is what is being implicitly represented when somebody is a market maker, i think that people who deal with market makers implicitly

understand, and i think this was, in fact, in the goldman disclosures that the market maker could be taking all sorts of different positions, that there could be people including goldman sachs that are thinking that it is, that is a foolish thing to be on one side of the deal versus the other. i think that is by definition the, what a market maker is. >> well, how about, how about the participation of mr. paulson as alleged? and i agree with you we don't know all the facts yet, but as alleged mr. paulson was the person who put these subprime mortgages together. and he's a major hedge fund operator. and as it worked out, he, according to the allegation, selling them short made a billion dollars. how can even a sophisticated investor exercise diligence to

go into a bundle of subprime mortgages and figure out what they are when the person who's putting them together knows what they are and thinks they're going to go down in value? how about that? >> i agree with you if those are the facts. it turns out that that is what mr. paulson was doing and goldman knew it and was representing otherwise. then that clearly is not only a civil problem, but it could be a criminal problem. i think that my point earlier -- >> could be when you say goldman knew what mr. paulson was doing? >> the only reason i say it could be a criminal problem is the prosecutor looks for criminal intent and whether one can prove that beyond a reasonable doubt. but there would be assuming those set of facts you would look at civil liability and to make a criminal case in

connection with misrepresentations about the stock that a person was choosing undisclosed, in fact, a misleading statement was made about that person's role in the security that was being marketed. that would be very different and raises, i think that's the reason there's such a strong reaction to the goldman sachs allegations by the sec. it's not simply the market maker factor, it's the issue of whether the disclosure was misleading about what mr. paulson's role was going to be. and if those bear out, then i think everyone has good reason to be upset. >> well, how about the nondisclosure? isn't nondisclosure sufficient to establish culpability? nondisclose your of a very material fact? >> under -- that could be. under the curt securities --

current securities laws a material omission can be prosecuted civilly and criminally under the current civil laws. >> mr. sill silvers as mr. weissman is moving along here, he's, i think, conceding there's criminal liability on the facts as represented. maybe we don't need to change the law at all. what do you think? >> well, i think you need to follow very carefully these distinctions between misrepresentations, misleading statements and omissions. my understanding is that the question of an omission under current law for a broker dealer or a market maker is at best unsettled. and that that really is the nub of this discussion. the question of whether that, the question of whether the general securities law standard that mr. wiseman referred to at the end of his comments which is

the standard that would apply to an issuer of securities o or an investment adviser who has fiduciary duties. an issuer has statutory duties -- >> how would you classify goldman sachs in this transaction? >> goldman sachs appears to have been a brokered dealer acting as a market maker. they appear -- it is unclear to me whether or not in the context of doing that they were rendering investment advice. if they were rendering investment advice, their defense is going to be they're not covered by the advisers act because it was incidental to their market-making function. >> when you say rendering investment advice and that is the fiduciary standard, congress has the authority to define what the investment advice is. but if you have a goldman sachs

selling these securities knowing that they were a fund -- bundle of subprime mortgages put together by an individual who thinks they're going to go down in value, isn't that sufficient to owe the customer when you talk about a fiduciary duty, you tell them what's happening? fiduciary duty's a big, fancy word, but in effect, to tell them what's going on? >> mr. chairman, i think this is, i think what you're pointing out here is that the reality of behavior today by brokered dealers is that it involves both sort of an old-fashioned sort of market-making caveat emptor kind of behavior where a customer shows up and says i want a particular security, sell it to me, please, quote me a price which is what, i think, the framers of the securities laws

in the 1930s had in mind. it involves investment advice. the customer who calls up and says, you know, tell me, mr. broker, what would you suggest i buy today, or what do you think my portfolio mix ought to look like, they don't have discretion over the account, but they're rendering advice. and a third thing which i think is really the key to understanding the goldman situation which is something that looks sort of like being an issuer which is you're packaging a security, goldman knew something about the internal workings of these securities according to the allegations at least that a customer could not possibly have known in a way that a traditional market maker would not. >> even a sophisticated investor? >> i don't think -- what goldman knew, apparently according to the allegations, was that paulson, was that john paulson who had a short position was putting the package together. >> mr. silvers, mr. silvers is it adequate to deal with this kind of conduct with a fine?

i note a media report that goldman's value declined some $21 billion. is it sufficient to impose a fine, or what kind of a fine would be big enough to be punishment? what kind of a fine would be big enough to be a deterrent to others? is there any fine sufficient to equate a jail sentence in terms of deterring other people? >> mr. chairman, i'm reluctant to comment about the details of this case for the same reasons as my fellow witnesses are, but i will comment in detail about what your question is in general. it's been a mystery to me throughout my involvement in these issues why it is that fines in the areas of securities fraud and other investment issues are as small as they are in relation to the firms and the conduct involved. but it's a feature of our system that they are very small in relation to a firm like goldman

sachs. >> well, is any fine sufficient compared to a jail sentence? >> i think there's a qualitative difference. >> ms. roper, is a fine sufficient? do we need jail sentences here as a deterrent? >> i mean, i agree that white collar criminals should face the same risk of going to jail and, arguably, they do much greater damage. if you look at the history of the fines that are imposed, even the most, you know, extensive fines that have imposed in recent years, they're a drop in the bucket compared to the profits that the firms are making on this activity. and as a practical matter, we will not get fines at the level that would inflict that kind of damage. and if you look, for example, in the issue of jpmorgan sales of swaps the communities around the country which have left towns, school boards firing people in debt, it was the criminal

investigation into price fixing in that market that ultimately convinced jpmorgan to shut that unit down. it was the threat of jail time which one jpmorgan employee actually did a little that really sort of got their attention. and i don't think given the kind of profits they were making in that business that you could have done it with the traditional tools. >> mr. weissman, what fines have been sufficient in the enron case or do you really need jail time to have a deterrent? >> i agree with you that there are cases where you need jail time to have a sufficient deterrent. i think it's a complicated question. first, for corporations there is no jail time. so the kinds of, to answer your question about what can be an adequate deterrent, sometimes a fine is not going to be sufficient, and other measures such as a monitor barring the

company from engaging in certain types of transactions either permanently or for a temporary period can serve a deterrent value. individual prosecutions criminally can serve a deterrent value, but not necessarily for corporations because they can simply cut loose that employee and not really take to heart what that means in terms of systemic change at the institution. so when you deal with corporations, the issue of jail time is really illusory, and you have to sort of figure out what else one can do other than a fine to get the company's attention when you really have egregious conduct. >> mr. weissman, i want to shift to a little different subject. the supreme court has said that aiding and abetting does not give rise to civil liability under the securities act, so i've introduced legislation co-sponsored by others to change that. congress, of course, has the

authority to change the laws or the supreme court interpretation on something other than a constitutional issue. aiding and abetting is a crime. how can you have conduct defined as a crime which is a much tougher standard to prove a crime than civil liability? won't it lodge create follow that there ought to be civil liability for aiding and abetting? >> i think that the current state of the law is certainly unusual in that you have a criminal aiding and abetting statute, but it is not true that there's no civil liability. it's a question of the court, i think, interpreting what congress had done, determined that the sec has enforcement power. and i think, candidly, what was going on -- >> unusual. do you know of any other case where conduct is defined as

criminal conduct giving rise to a civil claim? >> not off the top of my head. i'm sure there are, but not sitting here right now. >> let me move to another subject because i want to bring in the second panel. you omitted a paragraph in a revised statement that you submitted. it's a long one, but i think it's a very important issue, and i want to read it. this was in your first statement and omitted from your second statement. likewise to the extent that civil lawsuits brought by private individuals have also failed to create a sufficient deterrent effect, the problem the likelihood of civil liability is too low rather than civil sanctions are too weak. in particular, prior to imposition of new criminal liability it may be worth examining whether some of the road block erected to prevent civil strike seats have been unintended consequences of blocking legitimate civil claims particularly when they concern complex financial instruments. for example, it has been made

intentionally difficult to apply with requirements that dictate that the initial complaint must spell out the specifics of the civil fraud even prior to taking discovery. this may be unwarranted when the securities involved -- trade on a transparent open market. many structured financial products do not, and the practice of the financial institutions are not seen by the investors. similarly, even in cases of blatant fraud victims may find it difficult to overcome case law that almost automatically deems buyers so-called sophisticated investors even the they understand little about the complex securities marketed to them and even if they were told the securities were not complex at all, closed quote. now, that's pretty complicated for c-span viewers, but the people in the field will understand it. aren't you really saying there that the law's gone too far and that the decisions,

congressional decisions of 1995 securities act require particularity when a plaintiff really can't know the facts and has gotten them traditionally by discovery but can't now and that the limitations on the pleading rules on the recent supreme court decision have gone too far and that there ought to be greater at latitude in the civil lawsuits? you're suggesting that if there were that latitude, that might deal with the issue as opposed to criminal liability. should we reduce the particularity necessary for a plaintiff -- >> yes. >> -- the pleading standards as interpreted by the supreme court? >> well, i think the supreme court court was correct in recognizing a different in terms of who would be bringing the lawsuit. and trusting that the sec would be looking after the public

interest with a concern that many lawsuits are brought as strike suits where they're not meritorious. and the issue is how to screen out the so-called strike suits that, frankly, are attacks on all of us because they're not meritorious, and you have corporations spending a fortune defending them. the reason for the change in what i submit ised was -- submitted was because the issue of how to best regulate, how to best deter conduct i don't think comes from bringing more private civil lawsuits. i don't think that's a mechanism for affecting change. i think that there are other ways to do it, but i don't think corporations respond to that. i think that what you get because there's so many frivolous lawsuits like that is corporations spending a lot of money and correctly viewing the

vast majority -- >> mr. weissman, answer yes or no. if you can, i'd like you to do that. if you can't, i understand. but can you answer yes or no that there ought to be greater latitude in pleading? >> i think the answer to that -- >> [inaudible] motion to dismiss. >> i'm sorry? >> to avoid a motion to dismiss. >> i don't actually know, but i don't think that the current standard is inappropriate. as set forth by stoneridge and recent supreme court cases. >> why'd you take the paragraph out of your resubmitted statement? >> precisely for the reason i told you which is that the issue of how to best regulate conduct, how to best -- what i understood this hearing was about was what is the best way when there is wrong doing at corporations to -- >> what did you think, what did you think was the best way to regulate conduct when you

submitted your first statement? >> exactly what i wrote when i looked at that paragraph. i realized that that did not -- >> did you change your mind on the best way to regulate conduct? >> yes, i did. >> okay. thank you very much, ms. roper, mr. weissman and mr. silvers. appreciate your testimony. we'll move now to panel two, professor john coffee, professor henry pontell, professor barrett and professor ribstein. without objection, we will insert into the record the written statements of the witnesses not available for this hearing. our first witness is professor john c. coffee jr. he's the adolf burr rell

professor of law at columbia, also the directer at columbia of the center on corporate governance. professor coffee has a very distinguished record as a member of the legal advisory board of the new york stock exchange and masd and a member of the economic advisory board of nasdaq. he has been a professor at an amazing array of law schools, harvard, stanford, virginia, michigan. is that correct? >> been a professor at all the ones you just named. >> wow. lot of law schools. and has the most widely-used case books on securities regulation in corporate law. the adolf burrelr professor of law chair at columbia is named

after extraordinarily distinguished professor who wrote the casebooks and the treatises for many years. professor coffee is a graduate of amherst and yale law school. the floor is yours, professor coffee. five minutes. >> thank you, chairman specter and members of the staff. my message is simple and direct: a fundamental hole exists at the center of the pending financial reform legislation that is now wednesdaying its way through congress. and it will continue to exist unless and until congress tells brokered dealers and investment banks, basically, that the client comes first or in the language of lawyers, that brokered dealers and investment banks owe fiduciary duty to the investor. conflicts of interest played a key role in causing and intensifying the 2008 financial crisis. i study financial history, that's not unusual.

conflicts of interest have played a key role in most of our major financial meltdowns. we saw like we've seen already this morning and i won't rehash the history of what happened with investment banks and credit rating agencies giving inflated ratings and selling products that they were personally betting against. i want to tick you back just to ten years ago when we had enron and world come. we found that securities analysts were making inflated recommendations which they in con contemporaneous e-mails discounted and showed they disbelieved. at that time a man called jack grubman at citicorp told the world that, quote, what others called a conflict he called dissynergy. that same attitude was prevalent last week when there was another symptomatic moment. at a critical point in last week's goldman's hearing, senator susan collins asked a panel of goldman executives,

quote, did they have a my -- fiduciary duty to act in the best interests of their clients? they were sort of stumped, gave halting answers, but one did say he did believe we have a duty to serve our clients. now, whatever he meant by that, the correct answer is simple and unambiguous. except in a very few states like california, brokered dealers owe no fiduciary duty, no general fiduciary duty to their clients. that defines the problem, and that makes possible the continuation of serious conflicts of interest. what brokers today owe is a much lesser dilute standard set forth in something called the suitability rule. the suitability rule is passed not by congress, not by the sec, but by with self-regulatory bodies that began with the stock exchange and the nasd and it's now a rule at finra, but it requires only that the broker not believe on facts that the

client has disclosed to him, that this particular security is unsuitable. it's contrary to their needs given the information they've disclosed to the broker. that's a much lesser standard of fiduciary duty that requires that you act in the best interest of the investors. so the differences between today, a standard that says don't recommend a security if it's clearly unsuitable on facts decline as told you versus always act in the best interests of the customer. acting in the best interests of the customer, is that a bad idea? several panelists in their prepared statements will tell you, have set forth that a fiduciary duty is inefficient, vague, ambiguous and liability-leaden. i think basically these are a laundry list of chicken little reasons telling us that the sky will fall in if we mandate that you act in the best interests of the customer. let me make some basic points

about whether or not the sky will fall in. first of all, the securities laws contain a number of specified fiduciary duties and have done so since 1940. if you look at the investment company act of 1940, it has a section 36 which last month a unanimous supreme court continued to set forth the fiduciary duty to govern. that's what all mutual funds are subject to today. there was major hearing in front of a body called the investment company institute three weeks ago, i was a keynote speaker at their lunch, and they all agreed they could live with the jones v. harris standard, that the fiduciary duty recognized by the supreme court was not going to be a significant business problem for them. my point is, the sky's not falling in on that deal.

now let's talk about the economic advisers act of 1940. all investment advisers are subject to a fiduciary duty, and most of the major investment banks already live with that standard in at least part of their activities, so in much of what they do, they do live with a fiduciary duty. the house committee did and with no strong objection from finra at the i'm of that proposal. -- time of that proposal. my point is living with fiduciary duties today, the sky is not falling in, and i think the key issue for congress is, is it going to accept the current world which is as some described it caveat emptor in terms of what can be done in the private world of placement agents, or is it going to assist on a fiduciary duty? that's for congress to answer. i don't have time to go into all the issues answer the criminal law, but i would point out because the supreme court is certain, almost absolutely certain to be invalidating the existing honest services fraud statute which is an overbroad,

overarched statute that i've previously criticized, but because they are unlikely to invalidate that statute, there is a need of dealing with just the fiduciary duties of a brokered dealer. you're going to have an empty slate, not the slate everybody's been describing. the principle on a services statute will be invalidated, and you do need something to replace it. so at this point let me stop and just say i think the key issue is the fiduciary duty, and i congratulate you for being on the right track. thank you. >> thank you, professor coffee. our next witness is professor henry pontell, teaches criminal, criminology and law and society at the university of california at irvine, has a bachelor's degree and master of arts and ph.d. all conferred by the state university of new york at

stony brook. he has devoted three decades of academic scholarship to the problem of financial fraud and white collar crimes, served as vice president of the american society of criminologists, president of the western society of criminology. thank you for coming a long way, professor pontell, and we look forward to your testimony. >> thank you, chairman specter. staff. and thank you for the invitation to discuss policy issues related to the use of criminal punishment to deter financial fraud. white collar and corporate crimes impose an enormous financial burden on citizens, and it must be appreciated that they constitute a more serious threat to the well being and integrity of our society than traditional kinds of street crime. as a presidential commission put the matter, white collar crime affects the whole moral climate of our society. derelictions by corporations and their managers who usually occupy leadership positions in their communities establish an example which tends to erode the

moral base of the law. there are several major themes i want to address in this brief presentation which summarizes my longer written testimony, and i will stick closely to the issue of deterrence through criminal punishment which i was asked to concentrate on versus the larger issues of the crisis. first, i want to support the infliction of criminal penalties on white collar and corporate criminals who violate criminal laws. the current spate of financial sanctions is no more than an additional and mildly bothersome cost of doing business. second, i want to everyone sides that persuasive -- emphasize that evidence indicates potentially the prospect of criminal penalties can be effective deterrents. there is no evidence to prove this to mount a satisfactory experiment on the subject. but we know that upper class business persons fear shame and fear incarceration. they are rational calculators par excellence. third, i would endorse the notion that regulatory agencies,

most notably the securities and exchange commission, be empowered to mount criminal prosecutions with internal personnel. too often interagency agendas that must be negotiated between an agency and the department of justice inhibit effective deterrent responses to white collar and corporate crime. fourth, i believe the public is growing increasingly restive. the war on drugs snared a horde of financially marginal people. there's been no similar war on financial thugs. to make a decisive move towards determining fraud in the higher echelons of business a significant influx of enforcement resources is necessary to allow investigators and prosecutors to bring major cases. fifth, besides considering harsher penalties, congress needs to seriously consider having chief criminologists or fraud experts as central officers of regulatory agencies just as there are chief legal

counsels and economists. a fraud analysis should be conducted before any new regulatory legislation is enacted so that we can avoid repeating mistakes of the past. given the low probability of apprehension and the likelihood of no or light punishment, white collar crime is seen as a rational action in many cases. the comparative leniency shown white collar offenders has been attributeed to several factors, the peculiar characteristics of their offenses. empirical evidence supports the hypothesis, a study of persons suspected by federal regulators in texas and california to be involved in serious financial crimes during the savings and loan crisis of the 1980s revealed that between only 14% and 25% were ever indicted. the study also examined the sentences imposed in s&l cases involving mean losses of a half million dollars and found that the average sentence was three years, significantly less than the average prison terms handed

to convicted burglars and first-time drug offenders tried in federal court. some writers have labeled the corporate scandals a, quote-unquote hysterical arguing that penalties for failures are not merely low earnings, but prosecutions, huge fines and long prison terms. they may be correct about it causing lawsuits and fines, but their mistaken about prosecution. long prisoner terms are not caused by mere failure, they're caused by serious criminal behavior. a central problem that underlies the current strategies is that despite some high-profile cases, the government has trivialized criminal fraud to the point it is routinely dealt with at the lowest levels, and when large cases are discovered, they're more likely to be pursued civilly and not criminally. a key example, the fbi publicly announced in 2004 that there was the potential for quote-unquote an epidemic of mortgage fraud, yet attorney general michael

mukasey created a task force to investigate the root causes likening the problem to, quote-unquote, white collar street crime that could best be handled by individual united states attorneys' offices. the lack of government response after the alarm had sounded stands in direct contrast to the government's response of the savings and loan crisis, a financial disaster that was approximately one thirtieth of the size of the one we are currently experiencing. the central issue is strong proactive policing. in conclusion, in august 2009 hank greenberg and howard smith, the company's chief financial officer, paid $15 million to the sec to settle the charge they had misstated the financial condition of the company. regarding the dynamics of white collar crime, it was noteworthy that greenberg insisted had he been charged criminally with securities fraud, he would have fought the case rather than settle. this might be regarded as a

piece of evidence favoring the view that the most effective tactic is the criminal charge. they find oppressive the stigma created with a criminal label. thank you very much, mr. chairman. >> thank you, professor pontell. our next witness is a professor a.w. barrett, assistant professor of law at george mason university where he teaches corporate and security law. prior to joining the faculty at george mason, professor barrett was an associate in the sec enforcement defense practice in washington. he has his bachelor's degree from louisiana state university, a masters from harvard's kennedy school of government, and his law degree from the harvard law school. thank you for coming in,

mr. verret, and the next five minutes are yours. >> thank you, chairman specter and ranking member graham and distinguished members of the subcommittee. i appreciate the invitation to testify today. as you said, my name is j.w. verret, i teach at george mason. i also direct the corporate federalism initiative, a network of scholars who are dedicated to studying the intersection of state and federal authority in corporate governance. considering new legislation requires that we compare the cost of the new law against its benefits. this is typically a very complicated process. for today's proposal, however, the exercise is fairly simple. a criminal fiduciary duty standard for securities brokers would impose inordinate costs on the securities market. it would be passed through to investors while doing little to stop future financial crises. i will also note that comparing today's topic to the goldman sachs controversy is inappropriate. that case is come for complex, d

that case awaits final verdict. i certainly don't need to remind the committee on the jewish judy that it would be foolhardy to make new legislation under the assumption that wrong doing occurred without a full trial on the issue. if it is ultimately determined that goldman sachs did engage in wrong doing, the department of justice already has the necessary tools to prosecutor securities fraud under section 10b of the securities exchange act of 1934. the legislation under consideration today then would not assist in prosecuting fraud of the sort alleged in the goldman sachs case if, indeed, fraud occurred in the first instance. our work focuses in part on fiduciary duties in corporation law. i was privileged to clerk for the delaware court of chancellor ri, one of the sources of american corporate law. the concept of fiduciary duties we're discussing today emerging emerging -- emerged from that court in many ways. under a fiduciary standard and

after the fact, it is too tempting to decide whether a decision was fair at the time it was made in light of how the investment ultimately performs. business decisions like purchases of investment products are highly risky. that is why they can be so profitable. but in administering fiduciary duty laws, it is nearly impossible to avoid being influenced by the perfect vision of hindsight. such monday morning quarterbacking would, however, chill the securities markets in a incident way at a time when they are already under severe strain. getting fiduciary duties right in the civil lights sphere is difficult enough. making violations into criminal violations would pose an even greater challenge. there are a wide variety of different relationships between securities brokers and their clients. some securities brokers act as counselors, merely -- some merely facilitate transactions at the client's direction. some brokers cater to large

institutional investor clients, others cater to individual retail clients. the contracts governing these relationships are equally diverse. a global fiduciary standard for all of these relationships would limit investors' flexibility to design contracts appropriate for their particular needs. by way of analogy, consider for a moment the market for foreclosed housing. fore closed homes -- foreclosed homes are more likely to need refurbishment and have high maintenance costs. banks foreclosing homes don't have the resources to inspect all of those foreclosed homes. so foreclosed homes sell as is at a deep discount. buyers with the skills to gauge the risks are willing to buy those foreclosed homes without requiring absolute guarantees from the banks selling them because they offer the possibility for generous profit but also, of course, in tandem the possibility of significant risk. now, if we were to mandate that

banks selling foreclosed homes issue an absolute guarantee on the homes they sell, there would no longer be a market for these homes, and a recovery in the housing market would be all but impossible. the same would happen in the securities market if we made brokers through an unprecedented criminal fiduciary standard absorb all of the risks of the products they sell, particularly given the protections in these areas. brokers would operate under the possibility of prosecutions that targeted them for selling products that lost money despite being farrising at the time they were sold to. the criminal fiduciary standard for securities brokers is a misguided idea. a civil fiduciary standard ideas also poses the risk of significant cost. now, should this committee decide to institute a civil standard, i would urge an exemption permitting brokers and their clients to opt out of light to permit transactions for which all of the parties to the

transaction feel fiduciary duties are not entirely appropriate. i thank you again for the opportunity to testify, and i look forward to answer your question. >> thank you, professor verret. our next and final witness on this panel is professor larry e. ribstein. [inaudible] occupies the mildred jones chair in law at the university of illinois college of law. professor ribstein is the author of leading treatises on limited liability and -- [inaudible] case books from 1998 to twup he was co-editor of the supreme court economic review as written and co-authored approximately 140 articles on corporate securities and partnership law.

has a bachelor's degree from johns hopkins and a law degree from the university of chicago. we appreciate your being with us, professor ribstein, and we look forward to your testimony. >> thank you, senator specter, for the invitation to testify today. my testimony focuses on whether securities professionals and i'm including investment banksers should have fiduciary duties and whether there's a criminal liability. in summary, i believe these are the wrong tulles for dealing -- tools for dealing with any problems that might exist in the securities industry generally. the fiduciary duty is one of the most aim-worthless concepts in the law, and that's not a chicken little statement, that's simply a statement of fact. commentators have used fiduciary language to describe many duties arise anything a variety of circumstances. it's not clear, for example, precisely how fiduciaries differ or whether they include the duty of care, good faith and fair

dealing, duties arising out of -- [inaudible] duties imposed only because of unequal cities caix or bargaining power. in the strict sense of unselfish conduct are appropriate only in a limited case where one party delegates open-ended management power over his property to another. which is, this is a classic situation for imposing fiduciary duties. this is a situation that justice car doze sew referred to when he called for duties stricter than the morals of the marketplace, and it's far removed from the usual situations involving investment bankers, brokered dealers and investment advisers. fiduciary duties are predominantly a matter of state law. there's no general federal common law on which courts can draw. a general fiduciary duty applicable to a broad range of investment banker dealings could

leave uncertainty. for example, it may not be clear under a general fiduciary duty what types of conflicts of interest are permissible, when contracts waiving fiduciary duties are enforceable, whether disclosure of conflicts is sufficient to avoid a fiduciary duty, what types of information must be disclosed, how material the information must be to trigger liability, to whom the duty is owed and what the remedy for a breach of duty should be. and professor coffee raised the existing fiduciary duties under investment company act, investment adviser act as an indication these are unfounded fears, but i would point out in the case of the investment company act in the case that was recently decided by the the supreme court in jones v. harris, that duty which is actually fairly specifically defined in section 36b of the investment company act is still unclear after 40 years of litigation and not a single

point of victory at trial. there's also an ambiguous ill-defined duty for investment advisers defined by case law and, again, that not very clear. so i think those are examples rather than counterexamples of the problems we might be facing by imposing a fiduciary duty. disclosure duties are, in fact, generally sufficient without resorting to a new investment banker fiduciary duty, and that would include the situation involved in the goldman sachs case, that those material -- if those omissions, those misrepresentations were material, there is, in fact, a remedy under existing law. if they were not material and there was no material nondisclosure, then there should be no -- [inaudible] any new investment banker duty should not be imposed as part of a general fiduciary duty, and they should emerge with careful which the current bill pending before congress requires,

renewed standards of care for brokered dealers and investment advisers. the application of criminal penalties will significantly exacerbate the problems of applying inherently vague and ambiguous fiduciary duties possibly violating constitutional rights. vague criminal duties actually result in less deterrence of misconduct than would be accomplished by a more precise remedy. by failing to inform parties of the conduct they must avoid. we also must keep in mind and this is the closest i'm really going to get this morning to a chicken little statement, criminal fiduciary duties may overdeserve by threatening punishment even of socially valuable behavior. firms seeking profits over the long haul will give a wide berth to behavior that has the slightest risk of criminal sanctions that could send individual employees to jail. this could impose significant social cost by inhibiting innovation among other things. broad criminal liability for breach of fiduciary duty could

encourage abuse of power, we've seen examples of this in recent back dating cases. without defining the duties that give rise to criminal penalties, we give powerful weapons to prosecutors, and i think we should keep this in mind. in conclusion, whatever problems exist in the securities market -- and i'm not one to say there are no such problems and that no remedies are called for -- criminal fiduciary duties are the wrong tool to deal with them. thank you again for the invitation, and i welcome each question. >> thank you, professor ribstein. professor coffee, is it practical to define fiduciary duty in a criminal context with sufficient specificity to avoid the problems of due process of law being vague and indefinite? >> well, two responses to that. first of all, this statute is much narrower than some of the criticism suggests it is. it doesn't just say you're a

fiduciary, go out and observe a puck till owe of an honor the most sensitive, it's focused on a special context. the brokered dealer giving investment advice or solis lit -- soliciting sale, selling securities that it has packaged to its investors. now, that's the context that the statute does address because your statute -- and i've made some suggestions to narrow it further -- only addresses the soliciting of purchases or sales. and in that context we know what's going on. i think that's not a general duty. it doesn't mean you'll be liable for negligence, and it would only be a willful violation. willful violation means a conscious intent to defraud the investor and receive a gain at the investor's expense. now, picking on it altogether, i think that the standard of fiduciary duty is very much like

the standard of 10b5. you are going to be trying to cheat someone. the difference between the two is that while we've been told by everyone that 10b5 is sufficient, 10b5 doesn't reach all contexts. it doesn't preach, for example, the context where there's a -- that's the context that fiduciary duty standard would reach, so there are areas that fiduciary duty standard would reach that nothing else reaches. finally, i would say the most important thing for congress to do is to specify the fiduciary duty standard because we can't tell regulators to enforce the law without first telling the subject people in the private sector what their duties are. what you must do is put the interests of the client first, what you must do is act in the best interests of the client in giving investment advice or in soliciting purchases or sales. i don't think that approaches being vague at all.

this is not the problem of the honest services fraud statute which didn't tell you whether it was addressing federal law, state law and was subject to every possible interpretation so that the boy scout oath could be brought into the honest services statute. this is very narrow, selling or giving investment advice. you must act in the best interests of the customer. it doesn't affect the mere market maker who's quote ago two-sided market. i think there is no serious void for vagueness problem and, finally, the sec is given express authority to draft exemptions, interpretations. they can add a great deal of density extending the law, explaining where it applies and where there are exemptions, and i think and i suggested some revision ises to your statute that would give the sec greater authority to give exemptions and safe harbors, so that's my long answer to your short question. >> professor ribstein, doesn't that delineation in the

parameters of the proposed legislation pretty much answer the issues which you have raised? >> i don't think so, senator. standard best interests of the client is actually pretty close to a broad fiduciary standard, could be interpreted to extend all the way to refraining from all kinds of unselfish, all kinds of selfish conduct which is really what the fiduciary duty does, but it extends that to a situation that's not really the situation that's governed by that strong fiduciary duty generally which is the mere rendering of advice rather than the turning over of complete delegation of control which is normal ri the situation where that fiduciary duty of unselfishness applies. so what we would have under that standard is, again, decades of litigation just like we had with the fiduciary duty in section 36b of the investment company act where courts eventually

might define a standard, but until they do parties wouldn't know exactly what standard, what kinds of conducts are forbid b them. and, again, we get the problem of overdeterring innocent, socially-productive conduct and possibly underdeterring conduct that we really want -- >> professor ribstein, with the existing laws imposed criminal liability on goldman sachs for what is alleged by the sec? >> if they're guilty of what they've done and i would go back to andrew weissman's testimony earlier today, they did it willfully, they engaged in fraud, then, yes. >> professor verret, you said that on an analogy to housing that the brokers would have to adopt a widespread investigation. is that really so?

what we're talking illustratively in the sec imraint against goldman sachs, these are things goldman sachs knew. this is not a matter of telling the party in that line to go and investigate matters. these are things they knew and failed to disclose, acts of omission. isn't that significantly different from the consideration you raised? >> well, i would offer, first, that this statute would not be limited solely to the goldman, you know, fact situation. so it would be used much, much more broadly, and i think, frankly, contrary to professor coffee's analysis, i would offer that, you know, we've seen a number of pieces of language in legislation become very, very widely defined by the sec, and i would offer as an example the definition of offer under the registration statement rules and how offer has come to mean not just offer, but any communication of any kind. so i'm still concerned about the

uncertainty and the fiduciary duty standard. you know, the fact patterns will be, will be -- that would be subject to the statute would be much wider than the goldman scenario. and i would point out one differentty which would be if you're a fiduciary to a wide varian -- variety of interests, you could be in a difficult spot. let's remember you change the pattern a little bit or even in the goldman scenario, let's remember they might have had a fiduciary duty to mr. paulson as well. what if paulson comes to goldman and say here's some information i've got through my own, you know, investigations and here's why i think housing's going to go down. if goldman had an obligation to give shareholders that information, they might be violating the duty of confidentiality to mr. paulson. putting in a fiduciary duty situation that's subject to a

variety of conflicting interests might just set them up to fail. >> how about the issue of the adequacy of fines? don't you think that to have some deterrent effect there have to be jail sentences under the rainbow? >> we have a number of different jail sentences for securities fraud, so i think we already have a lot of fines on the books. and a lot of jail sentences on the the books -- >> so you would agree that jail is necessary, but it ought to be imposed under existing law? >> it depends on the situation, and i don't want to say that i, you know, think goldman's situation determines -- >> i wasn't putting goldman in the question. >> okay. >> professor ribstein, how about it? are fines sufficient as a deterrent? >> they may or may not be, senator. i think we have to take into account both the costs and benefits of imposing criminal liability -- >> you have professor pontell's example of a $50 million fine

willingly paid with the statement that had there been a criminal prosecution it would have been vigorously defended. >> if we define the criminal liability appropriately, then a criminal penalty is justified. my problem is concern. >> the penalty could be fine or jail. i'm asking you whether you think it would be indispensable to move to jail as an effective deterrent. >> what i meant to say earlier, if we define the criminal conduct appropriately, then the criminal penalty is also appropriate. but my concern in what we're hearing today -- >> well, your criminal penalty again, but i'm asking you about differentiating from fine which is a criminal penalty. >> if we define the criminal conduct appropriately, then i think the criminal penalty could be also appropriate. my concern today is the finding a breach of fiduciary duty criminally without adequately specifying what that breach

entails. >> well, i've asked you several times whether criminal penalty means jail, and i won't ask you again. professor pontell, if $50 million is not enough as a deterrent, willingly paid as opposed to contrasting the defense had there been a criminal charge as opposed to the civil charge, is there any fine sufficient to act as a deterrent? >> [inaudible] excuse me. that's difficult to determine, mr. chairman. the amount of fines varies, and, you know, depending on the offender, on the resources of the offender and/or the offending corporation, some fines may amount to what citizens may consider parking tickets. i mean, $15 million to maurice greenberg is, you know, a considerable fine. $600 million to michael mill kin was a very considerable fine but

not a major part of their overall wealth or assets. so, i mean, paying those fines are, again, cost of doing business. >> thank you, professor pontell. senator whitehouse? >> thank you, chairman. thank you for hosting, holding this hearing. i think it's an important one, and i appreciate your directing the committee's attention to this. just to follow up on the discussion that we've been having, i recall the pharmaceutical industry being hit with literally billion dollars in fines for marketing pharmaceutical products for off-label uses and unapproved uses, and they went right back at it again because the fines were simply a cost of doing business. i'm not going to remember the numbers off the top of my head, but it was several billion in

fines, but they were making several tens of billions of dollars in profit from the marketing, and so the conduct continued, and they kept being brought back in to pay more fines, and it was just a cost of doing business. so i think when you look at the way many of our monetary penalties are structured and you compare that to the vast wealth, the huge numbers of dollars that are often involved in these major transactions, you can easily get to a situation in which monetary penalties alone simply by definition are inadequate. and unless people are looking at an actual sentence of incarceration, you're never going to have serious enforcement behind it. so i appreciate what you're doing. i wanted to ask the committee's view. we've talked a little bit about

the goldman allegations which suggest that in a transaction goldman was designing the product with the assistance of an investor who was going to bet against the product and the question is, should the person who was being sold the product also be given kind of fair dealing, knowledge that this wasn't just a goldman-designed product, this was a product that was designed with the assistance of somebody who would then be betting against it. and i have hate anecdotal -- heard anecdotal stories of similar sorts of transactions where products were being resold, securitized in tranches, and the bottom tranche, often an equity tranche, became the sort

of signal to the rest of the market for whether the higher rate of tranches were marketable and were valid and people should invest in them, and they'd look first to the bottom tranche to see how that went. and i've heard anecdotally stories of houses selling off the worst-rated tranche in order to open the market for the other ones but having cut a side deal with the buyer of the equity tranche that takes away any risk of the equity falling. and so in effect you had a sham equity buyer whose job, if the allegations are true, a sham equity buyer whose job was to come in and look like a legitimate equity buyer who had made an independent assessment of the risk of the product and thought it was investment-worthy when, in fact, they were propped up with this side deal that said to them if it goes wrong, we'll

stack you with a lot of shorts on this other stuff so that you come out fine. again, that raises the same question, should the investors in the other tranches have been made aware that there was more to that deal than met the eye? and so a lot of this, i think, comes down to a question of what disclosure is fair, and that raises questions of whether fiduciary duty is appropriate to prompt that disclosure. it also raises more general questions about whether somebody, anybody structuring a deal should be transparent about who's in on the deal and what all the terms of it are, not just the apparent terms that the public sees, and i'd love to hear your comment on that question. professor coffee first. >> i think what you've just described is something known as the liquidity put. you sold the equity tranche, but the big bank gave the option to sell it. they have a put agreement. they would buy it back if you

lost liquidity and you, the hedge fund, couldn't sell it. what that shows is these conflicts of interest often come back and even haunt the original bank. these liquidity puts put billions of dollars of liabilities onto the balance sheets of our major banks and possibly necessitated the tarn bailout -- >> [inaudible] >> huh? >> hoist with their own we tard? >> that may be true, but the injury flows to the american investor who has to bail them out. we find that everybody starts losing in a nontransparent world. i think if you had a fiduciary duty standard you would not design transactions in that way. you would not let one side or pick the portfolio and sell it to the other side. this can be dealt with partly through a disclosure standard, but i think the fiduciary duty standard, first of all, tells the operative managers what they're supposed to do, and that's the first obligation of the law -- >> let me ask you to follow up

on a point that i find very interesting. you just made the point that when there is a sort of risk at least of a systemic loss of confidence, the fact that these products are not transparent causes, a, the immediate financial result back to the bank of having to buy it back and get hit with it, but it also is something that people looking at the financial systems thinking that they understood it, thinking that they're comfortable with the way it was suddenly think, my gosh, this is a lot weirder than i thought. until this settles out, i better get my money out, so it could contribute to system instability to have all of this off the books, sort of nontransparent, back-door dealing going on when it becomes apparent to the public they've been sort of left out of the real equation. >> i think there were elements of a financial panic in 2008, and i think the lack of transparency always increases the possibility of that sudden

revelation that produces a panic. certainly lehman fell because of a panic, and everyone backed away because they didn't know what the full liabilities were. >> yeah. transparency has stability value then. professor ribstein, you wanted to say something? >> well, senator, i think the goldman transaction, i think, really points out some of the problems that we run into with imposing a broad fiduciary duty here because there's a question about what needs to be disclosed by whom, to whom that arises out of this transaction. now, it turns out that, in fact, the buyer of the securities as alleged in the complaint, ikb, was a bank that was, in fact, marketing, remarketing these securities as i understand it through a subsidiary that was engaged a little bit in what goldman is being accused of doing. it was, in effect, insuring this block of securities, the warren buffett -- warren buffett was --

>> that doesn't excuse the original person or the criminal law if you're -- [inaudible] and you sell something to somebody who then fences it -- >> no, senator, i wasn't -- i agree with that, and i wasn't trying to indicate that. what i was saying is that we had a very sophisticated party on the other side, and there have to be a different between the duty to disclose to this sort of party and what the duty to disclose is to other sorts of parties. and i think that this is, these are the kinds of questions -- >> wre gng t leave this hearing from earlier today now and take you back to the senate floor. lawmakers have returned from their weekly party lunches and are scheduled to resume debate c-span2.ncial regulations bil the senator from massachusetts. mr. brown: thank you, mr. president. mr. president, i rise to talk about a hero, robert j.barrett

killed in afganistan on apri april 18th. i attended his funeral. he was on foot patrol when an i.e.d. exploded killing him and eight of his soldiers of the 101st field artillery regiment. he was from fall city, from the southeastern part of massachusetts. a longtime member of the 54th massachusetts volunteer regiment. he was selected for the regiment's honor guard in early 2008 and took part in more than 350 events hon r -- honoring our soldiers. his primary mission in afganistan was of utmost importance, he trained those in afganistan and rather than spending free time relaxing, he volunteered at local orphanages

an schools. robert was a shining example of selfless service. one of the seven army values much before his deployment he wrote several lines that summarized his thoughts about his service and mission overseas. i would like it take a final moment to read one of his thoughts. i volunteered to put my life on the line for freedom and country. for my fellow soldiers, for my literal girl and for my weepg mother and father. i am going to land where american freedom is just a dream, a hope, a slow reality. i'm an american soldier. that was by robert j. barrett before he mobilized. thank you for time that and i yield the balance of my time. ms. mikulski: mr. president? the presiding officer: the senator from maryland. ms. mikulski: thank you very much. i rise to speak on the issue of financial services. but before i do, i'd like to say to the senator from massachusetts, senator brown, we in maryland express our

condolences to you, senator. senator brown? we in maryland express our condolences to you and your loss. we have suffered many of our own. so we're kind of comrades in arms at this moment of grief and we salute him and we salute and respect the family. mr. president, i come to the floor today to talk about an issue that i cared very deeply about and that i fought for all of my life. that is financial services reform. i'm not a janey come lately to this issue. in 1998, i opposed the repeal of the glass-steagall act which led to the crisis that we have today. i was one of nine senators to vote against the repeal of the glass-steagall act which tore down the walls between conventional banking and

investment banking. had that bill been defeated in 1998, we would have not had the crisis that faced us in the last two years. my family, too, has fought over generations to protect consumers and expand access to credit. at the beginning of the old century when the downtown banks wouldn't lend to people like my family, who they regarded on the other side of the tracks, my grandfather, along with other small business people in the area, got together and started a saving and loan to serve that community. they lent to people who didn't have access to credit. it lent to small business like my own father who opened a grocery store. they lent to women, like my own grandmother, who opened a bakery. when times -- when tough times came during the great depression, this savings and loan wanted to make sure that people wouldn't lose their homes. and if you paid a nickel a week on your mortgage, you were

current. i was raised in that sense that financial institutions should be on the side of the people and be able to have access to the american dream, to be able to buy a home, able to start a business. as a young social worker working in baltimore, working in baltimore's african-american community, i saw there once again there was no access to credit. the african-american community was sidelined and redlined. what we saw were these local pay day vendors that had names like happy harry. why was harry so happy? it was because he was charging 18% to 20% interest for a loan. i got together with the people in the community at the parish council and we were able to start a credit union so that there would be access to credit and end the scamming and the scheming and gouging of those hard-working people. and i continue that fight in the united states senate.

i helped to create a flipping task force in baltimore to end that scheme and scam. i also worked to -- as the chair of the commerce justice science appropriations. i made sure in 2009 working with senator shelby and listening to the comments of senator dodd, we put extra money in the federal checkbook so the f.b.i. could come after the financial fraud crowds, the mortgage fraud, the securities fraud. it sure wasn't the securities exchange commission. they were too busy sitting on their wingtips while money was flying out the door with these terrible, terrible lending practices. now, as we deal with this bill pending before the united states senate, the restoring american financial stability act, i want you to know i support this bill. i've been -- i've been a reformer and a watchdog all of my life.

i have a deep -- i have a deep suspicion of how big banks treat the little people and what they do with the little people's money. time and time again we see the consequences of loose regulations and would-be and tepid enforcement. yes, i said it wimpy and tepid enforcement. time and time again i voted for more teeth and better regulation and more enforcement. i all the wanted to be sure that it was main street who got access to credit and was against the unfair and abusive practices of wall street. but here we are again in this financial situation where we bailed out the big banks. we bailed out the whales. we bailed out the sharks. and we've left the people in the community, the little minuteos -- minnows to be able

to swim upstream an be on their own. now is the time to write this reform. now is the opportunity to pass real financial reform that puts the strongest consumer protections in financial reform. and to ensure that the greed of wall street doesn't trump the needs of mainstream -- main street. we need to put government back on the side of the middle class. if we can bail out banks, how about if we make sure we protect the middle class against proud to, duplicity, and gouging. people with limited access to credit are being victimized, abused and defrauded. it's both a crime and a shame. since the people who do it have no shame, maybe we have to make it a crime. in fact, i think we ought to make it a crime. when they get out of their pinstripes and start wearing orange jumpsuits and stand out on parents' visitors day.

maybe they'll have remorse and change the nature of their practices. when i travel around my state, whether it's in diners or the grocery store, there's anger an frustration in people's voices. they're mad and they're scared. they watched wall street executives pay themselves lavish salaries while they're worried about their own job and being laidoff. they watched wall street mortgage brokers profit off of irresponsible lending while their husbands work an extra shift to make sure they make the monthly mortgage payment and they watch big firms take very risky gambles with their money without any regulation. it was essentially casino economics. this is why people are mad and they're losing trust in government. people they counted on to protect them did not. what infuriates the people of maryland in this country and me is that there is no remorse by

wall street about what they did. nothing about their behavior suggests they learned or care about what is wrong. look what happened with a.i.g. after receiving $170 billion in taxpayer money, they paid themselves, $165 million in bonuses. i stood on the floor and said, a.i.g. stands for ain't i greedy. but, mr. president, it's not just about i don't want to have catchy phrases. i want to have concrete, enforceable, tough regulation. again, what bothers me is the lack of remorse and a commitment to reform. you know, when you right a wrong if you're in a 12-step program, people usually say one of the ways to right those wrongs is to say i'm sorry and really mean it. i did wrong and i will never do it again. and i want to make amends by making it right. not these guys. and so they need us really to

have a tough approach to this. they say we'll -- we'll never do anything lying that again. but actually they don't even say that. i think what we need to do is make sure we have the strongest regulation. we have an opportunity now to choose between real reform or business as usual. consumers need protection and regulation to guarantee the safety of their deposits and the availablity of basic banking services. small business needs credit to grow so that they can create a job for themselves and for those in their community. and we need to hold wall street accountable. we make sure that there are no taxpayer for bailouts ever again and to ensure when banks take risk, they do it with their own money, not with money out of the deposits of hard-working people.

the bill before us is an excellent bill. it provides a 21st century regulatory framework for the financial system. no more scheming, no more scamming, no more preying, and so on. so, mr. president, i think it is time to pass this bill. there are amendments pending that i think will also help to improve the bill. but i think it's time that we really pull the sharks out of the tank, make sure the whales don't crush the little guy, and to make sure that the minnows get a chance and that we have an economy that is just swimming. mr. president, i yield the floor. mr. gregg: mr. president? the presiding officer: the senator from new hampshire. mr. gregg: mr. president, i want to speak briefly here on the bill that is before us, and how i think it can be improved. first, i want to congratulate the chairman of the committee working with the ranking member. i understand they've reached an

agreement on how to do the issue of resolution which addresses the issue of too big to fail, which is a very critical part of this bill. i congratulate them for make that type of initiative and i hope that the rumors are true and such an amendment that will address a strong too big to fail language so the american taxpayers will not be on the hook for institutions which overextend themselves and take on too much risk, but are institutions so large that it is felt that they are too big to fail, that that concept will no longer be part of our lexicon and we will essentially put an end to it. i congratulate the chairman on that and the ranking member. it there are, however, other major issues within this bill that need to be addressed and they're extraordinary substantive and rather complex. a few of the ones that aren't even in the bill, for example, is how we address fannie mae and freddie mac. we know that the american taxpayer today is on the hook

for somewhere betwee between $400 billion an and $500 billion. $400 billion to $500 billion that we're going to have to underwrite in order to stablize those two entities on the debts which they have run up or the credits which they have run up which have gone bad and they have purchased. and that's serious. there will be a proposal that comes from it from our side of the aisle. it won't totally restructure fannie and freddie. it should. i'd like to see that. it's too complex in this bill. but will address some of the core issues that need be a addressed. we need to tell the american people forthrightly how much they owe. we ought to put on budget what the obligations are, because they're very scorable, relative to the costs the american taxpayer's going to have to bear in order to bailout and maintain fannie and freddie and it's going to be somewhere aroun

around $400 billion to $500 billion of additional debt and we know it's coming and we want to talk about it. it affects other debt obligations of our country in a lot of different ways, but primarily through crowding out. secondly, the bill has language on underwrierks but it's really not -- underwriting, but it's really not strong enough. if you want to know what caused this event in the back of 2008, what caused this traumatic event which almost brought the entire financial system of america down, which almost put us into a depression, put us into a very dear recession, cost a lot of people their jobs and there's a lot of people experiencing trauma because of it. there are three or four main causes. i talke -- i have talked about them before. one i believe the money was made too easy to get, at too low a price for too long by the fed. another was the fact that the congress specifically encouraged and in fact forced lenders for all intents and purposes to lend

to people who couldn't afford the homes that they were buying because it became congressional policy to do that. another was that people were shopping for the weakest regulators. this is what happened in the derivatives market. the derivatives were not structured in a way that actually put capital, liquidity or margin behind derivatives. and the fourth -- and i think it was probably the most significant -- was there was a total breakdown in underwriting standards. in other words, the people who were making the loans on subprime mortgages and on other types of exotic instruments so that people could buy houses who couldn't afford them were making those loans and not looking at the underlying value of the asset, and they weren't looking at the ability of the person to pay back that loan. what they were doing, quite simply, was making the loan because they were going to get a fee for it. then they were going to sell the loan, securitize it. it was going to be chopped up and sent out and syndicated, and they didn't really care what the loan did, because they basically

were just making the loan for the purposes of getting a fee. and in the banking industry, those were the one off lenders, but in the banking industry, you had a complete breakdown. banks were lending to people who they knew couldn't repay it on the loans reset and they knew the value of the asset could only support that loan if there was appreciation in the markets which was a gamble. this happens every time we go through one of these events, by the way, one of these real estate-driven recessionary events. it happened in the late 1970's. it happened in the late 1980's when i was governor of new hampshire and new england went through a horrific contraction as a result of an expansive effort of lending money in the real estate markets. underwriting standards break down. there needs to be a clear national definition of what proper underwriting standards are. and senator isakson and i and a number of other people, senator corker, are going to put forward an amendment in that area.

but one of the core areas here that needs to be addressed and hopefully it will be included in this bill and improve the bill in this area, but one area of this bill that simply has to be changed if it is going to be effective in doing what it has to do is in the area of derivatives -- the language of derivatives. now, most americans don't understand derivatives. it's understandable. they are complex products. but basically try to think of it this way. if you're on main street and you have got a business, usually a fairly large business, and you're making a product, you want to be able to sell that product to somebody at the price you quote that person and make the profit that you expect at that quoted price, but there are a lot of things that affect that product that you can't control. if you're selling it to another country, you can't control what the dollar is going to do in relationship to the currency of that country. for example, if you're selling it to brazil, whether their currency is going to go up or down or vis-a-vis the dollar. if you make a contract today,

make a contract to sell it today but can't make it for six months, your whole profit could be wiped out by the dollar devaluing. or the materials which you buy to make that product may change in value or availability. or the person you're getting a loan from to subsidize you -- not subsidize you but to allow you to expand your businesses to build that product, that person, that person who is giving you that loan may have troubles, financial troubles, and may not -- and you may have an issue there or vice versa. you may have an issue with that person. all of this are things which are usually beyond the ability of the individual who is making the product. in this case, i'm talking about making products to control. so there is something called a derivative, which is an insurance item. basically, someone insures for you over those risks. and there is a lot of complexity to this because these insurance items mutate into all sorts of different instruments. they can affect financial instruments, they can affect

commodities, they can affect goods, they can affect just plain currencies. but they are critical instruments, derivatives, for making the economic engine work. they are sort of the grease you put in the nick engine to make sure it -- in the economic engine to make sure it doesn't seize up, to allow the economic engine to move down the road. they are so critical that there is approximately $600 trillion in notional value. notional value is not what the risk is because there are underlying assets here, but that's a big number, big number. and so we have to make sure that when we amend the derivatives section of this bill to try to make them stronger -- have a stronger derivatives industry, we don't make big mistakes and basically undermine the ability of people to use this type of instrument to get credit and to make the markets work and to create jobs on main street, because are all tied back to jobs on main street. even if you're not working for

the company that uses the derivatives, you're probably working for somebody who does business with the company that does derivatives. in nashua, new hampshire, there are a lot of big companies that do business with derivatives. there are a lot more smaller companies that sell products to those companies. on main street. so it will affect main street if we do this wrong because credit will contract. and in america, the unique advantage america has is that we're the place in the world where if you have got a good idea and you're willing to take a risk yourself and you're an entrepreneur, you can usually get capital and credit to allow you to do that idea, take that risk and thus create jobs, which is the bottom line for all of this, we want to create jobs. so derivatives play a large role in making that system work. well, this bill, unfortunately, adopted language which was put forward in the agriculture committee which really undermines, literally undermines, first the safety and soundness of the derivatives market and secondly the ability

of america to be the leader in the derivatives market. now, our goal here should be very simple. our goal should be two steps. one, make our banking and financial system safer, sounder and a system which will, to the extent we can anticipate it, avoid systemic risk. and second goal in doing that, while doing that, our goal must be to have a vibrant credit market and capital market and be the place, the primary place in the world where people come to create credit and capital because that gives us a competitive advantage over the rest of the world. that creates jobs here in the united states. well, unfortunately, this bill as structured doesn't accomplish that. in fact, it undermines that. a good derivatives reform bill would essentially create an atmosphere where derivatives are more transparent, where the price something more transparent, and where there is standing behind the two parties to an agreement on a derivatives

contract assets, liquidity, margin, something that can be turned to should one of the parties fail to perform on the contract. this can be done by creating a reasonable exception for end-use derivatives. those are the ones where you basically have a pure commercial purpose, and if people don't fall into that reasonable exception, then requiring essentially that all the other derivatives be cleared and go through what's called a clearinghouse. and the clearinghouse becomes basically the situation where two parties to the contract or multiple parties to the contract essentially put up collateral, margin, liquidity, so that the contracts are supported, the counterparties are supported. and the clearinghouse also itself has to be capitalized dratly so that it doesn't become a risk because it's going to be

the insurer basically of these contracts. all very doable through new regulatory restructure or modified regulatory restructure. and then as these contracts become more standardized or are standardized, they move over to an exchange, and a lot of them could do that right now but some of them simply can't because of the exchanges, their contracts are too customized to move directly to an exchange. but over time, most of them probably will, and that's the way it should be structured. unfortunately, in this bill, it is directed that we set up a new process for doing these derivatives by taking the basically market makers in these derivatives, which are the swap desks, and moving them out of the financial institutions into separate institutions. where this idea came from is hard to fathom because on the face it makes absolutely no sense. i mean, it is so counterproductive to the purpose of making the derivatives

markets safer, sounder and more efficient and as a result a better market which creates credit in a transparent, fair, effective and sound way. it is so counterproductive to that on its face that you would have thought that anybody who suggested this would have immediately -- it would have been immediately been pointed out that this doesn't work. but for some reason, it's found its way into this bill, and the practical effect of doing this is that you're going to create these separate entities, these separate entities are going to have to be capitalized because you have got to have capital behind these derivatives desks. that's the whole point. you have got to have somebody standing behind these desks to make them viable so you don't end up with an a.i.g. what was the a.i.g. problem? there was nothing behind the derivative contracts except for the name a.i.g. you don't want that again. you want capital. it is estimated it would cost $250 billion to set up these separate desks.

what does that mean? that means that capital is not going to be available for the creation of credit. you're going to see an immediate contraction. it's estimated by the industry -- again, this is an industry number, not mine. you can take it with a grain of salt. that will cause a three quarter of a trillion dollars contraction in credit. that's main street, main street not being able to get credit. you can give them credit, you can say they have exaggerated and say it's only going to contract 80%. that's still $600 billion to $700 billion of credit that's not available on main street, to do business, to create jobs, take risks. it's just foolish to do that type of contraction and to set up this structure. plus, you've got nobody that's going to oversight this as effectively as the people who oversight the present derivative market makers. the fdic won't be able to get on top of this. eed probably will have trouble getting on top of this. you're going to create an

actually less stable platform from which to do these markets when the whole purpose of this bill was to make it more stable. it makes absolutely no sense. section 106 in the ag bill, i think it's section 714 or something in this bill. and you don't have to believe me on this. i mean, two of the major, premier regulatory agencies which have no real -- which are the fair arbiters here, really, they are the umpires, have both come out in a very unusual way because they don't usually comment in the middle of the legislative process like this and said this is really, my paraphrasing, a stupid idea, a counterproductive idea, the type of idea which if it were to be put in place would be cutting off your nose to spite your face and would end up with a less sound system. let me read to you from the commentary from the federal reserve staff on section 106, which is now, i believe, section

714. here is what the federal reserve staff said about this approach. "section 106 would impair financial stability and strong prudential regulation of derivatives would have serious consequences for the competitiveness of the united states' financial institutions and would be highly disruptive and costly, both for banks and for their customers." i mean, that's pretty specific. that's pretty damning testimony as to the effect of this language. it's going to reduce our competitiveness because a lot of these derivatives will go overseas. it's going to make it much more difficult to have regulatory -- sound regulatory policy towards derivatives, and it will be highly disruptive and costly, not only for the banks but for their customers. that's called main street, the people who create the jobs. a really inappropriate idea has

been put in this bill. don't just rely on the fed. if you're a fed hater -- and there appear to be a number of them in this body, for reasons i am still having trouble fathoming. it must be something against having a sound money policy. but if you don't like the fed, listen to the fdic. now, i don't think anybody around here doesn't give great credibility for the way that sheila behr handled -- the fairm of the fdic handled the bank crisis. very honestly, they stepped in, they settled out a lot of major banks. they did it in a way that was extraordinarily professional, and as a result, the markets remained calm, people got their money back, depositors were not at risk. this is an agency which has high credibility, and this is what sheila behr, chairman behr has specifically said about this.

"if all derivatives market making activities were moved outside the bank holding companies, most of the activities would no doubt continue, but unless regulated -- but in less regulated and more highly leveraged venues." in other words, be much, much more risky." such affiliates would have to rely on less stable sources of liquidity, which, as we saw during the past crisis, would be destabilizing to the banking organizations in times of financial distress which in turn would put additional pressure on the insured banks to provide stability." in other words, bad idea. it undermines the banking industry to do it this way. "and final÷ -- and finally -- actually actus isn't finally. the letter is three pages. but the final point i'm going to read. "thus, one unintended outcome of this provision would be weakened, not strengthened, protection of the insured bank and the deposit insurance fund, which i know is not the result any of us want."

that's pretty specific. so you've got the fed on one side, one of the major regulators saying this idea doesn't work, it will undermine the structure of the banking industry. you've got the fdic on the other side saying this proposal doesn't work, it's going to undermine the insurance deposit system. so you don't have to listen to myself or others who pointed out the failure of this section. listen to these regulators. this section has to be removed from this bill. there are other things that need to be done in the derivatives area which would improve the language. for example, you should not be mandated once you're on a clearinghouse, you should not be mandated to go directly to an exchange because it simply won't work. there needs to be an intermediary step as standardization and then you have -- the best thing to do would to be require regulators to look at these different instruments and if they aren't -- if they feel they can be standardized, tell them to be -- tell the people producing them to be standardized and then move them over. but to just unilaterally say

everything's got to go to an exchange sink going to be counterproductive and, again, push a lot of business offshore. but clearly this one section is really damaging to our efforts to produce a safer, sounder, more transparent derivatives regime which has adequate liquidity and capital behind it and which keeps america as the primary place to do credit in the world so that our entrepreneurs can get credit at a reasonable price so that they can go out and take the risk to create the jobs in america. mr. president, i'd ask unanimous consent to enter both these statements in the record. the presiding officer: without objection. mr. gregg: i yield the floor. a senator: mr. president? the presiding officer: the senator from montana. mr. tester: mr. president, i rise today to talk about amendment 3749, the tester-hutchison amendment. mr. president, before i talk about this amendment, i do want to thank chairman dodd for his work on -- a very strong wall

street reform bill. i think that his work has been very, very, very much appreciated by me and other members of the banking committee and look forward to getting to this bill and making it even stronger and passing it out of this body to -- to the president and into law. mr. president, i rise today to lift a burden inappropriately placed on our community banks in this country. these are the banks that make rural america run. they don't deserve to be left holding the bag for risky behavior of the big banks. what the tester-hutchison amendment does is hold big banks accountable for their actions by basing fdic deposit insurance premiums, base it on risk. our amendment would force big banks to pay their fair share of the insurance and it would fix a lopsided assessment system that we currently have which unfairly burdens community banks. the recent turmoil in the

financial sector has placed significant strains on the fdic deposit insurance fund. the first line of defense and resource tapped to provide assistance to troubled federally insured banks. since the beginning of 2008, the fdic has closed 229 banks, including seven banks just last week. that's left a wake of devastation that has impacted the entire banking system. some of our larger failures, including those of indy mac and bank united, caused significant destruction. they left the fdic deposit insurance fund depleted and destabilized. in fact, the fund began this year with a negative balance of over $20 billion. why is that? we now know that some of the institutions were engaged in risky activities, some far beyond the traditional

depository functions. but because the fdic deposit insurance fund was still based solely on the institution's deposits rather than assets, the fund wasn't able to take into account the impact that this risky behavior would have on the fund. in fact, under the current system, community banks pay 30% of total fdic premiums while holding only 20% of the nation's banking assets. i want to repeat that one more time, mr. president. under the current system, community banks pay 30% of the total fdic premiums while only holding 20% of the nation's banking assets. our bipartisan amendment brings some common sense back into the equation. the fdic and the fund have never faced such troubling times. in light of these failures, the fdic was forced to make emergency upfront assessments on all banks to protect the

integrity of the fund. montana banks didn't get involved in this risky behave. they didn't offer subprime mortgages or sell sophisticated financial instruments meant to manipulate the market. but montana banks, like community banks around the country, have had to pay the price for riskier behavior of the larger banks that destabilized the fund. mike richter, president and c.e. off of the bank of townsend in townsend, montana, tells me that because of the emergency assessments in december, his bank had to prepay three years worth of premiums. three years, mr. president. for the bank of townsend, that was a bill of $190,000 on top of the $70,000 that he already paid in 2009 assessments. i'm no banker but i know that is no way to run a business. when i think about the impacts that the community banks have had in my state and the role

that they play originating mortgages and providing small businesses and farms with credit, it pains me to see them suffer as a result of the risky bi haifebehavior of larger bank. that's why i've teamed up with my friend from texas, senator hutchison, as well as senators conrad, murray, burris, brown of masmassachusetts, harkin and shaheen in offering this important bipartisan amendment. we want to ensure that the fdic implements a genuine risk-based assessment system to protect the health of the deposit insurance fund and to -- and to ensure equity among fdic insured institutions. this amendment builds on the underlying language included in the bill, directing the fdic to base assessments on assets rather than deposits. specifically, the amendment would require the fdic to implement this change rather than permitting them to make the change as in the current language. it also further shifts the assessment-based formula to

benefit community banks by eliminating long-term unsecured debt as a factor in calculating assessments. and it includes language directing the fdic to implement risk-based assessments for bankers, banks and custodial banks, which have different structures than traditional banks. the fdic has already taken a step forward in recognizing the risks that larger banks pose to the deposit insurance fund. voting to base their emergency assets on the bank's assets rather than the deposits. the independent community bankers of "american option" offer support this amendment. they believe that it will codify these important changes and bring greater equity to the assessment base. in closing, let me say that i very much appreciate all the work of my colleague from texas senator hutchison, and i very much appreciate the committee's willingness to work with us on this important amendment. with that, mr. president, i yield the floor. mr. dodd: will my colleague yield before yield the floor?

mr. tester: i sure would to the senator from connecticut. mr. dodd: mr. president, i want to commend our colleague and friend from montana and his colleague, our colleague examine friend from texas, senator hutchison. this is exactly the kind of effort we're trying to achieve in this bill. it's a complicated area of law and i appreciate immensely the work of senator tester and others. i didn't hear all. i gather it's -- it's senator tester, senator hutchison, senator scott brown, senator harkin. you have a list of democrats and republicans here that have worked on this amendment to bring it to this point. and i support the amendment. i think this is a strong amendment here that will require the fdic, as i understand it -- and my colleague will correct me -- to change how it charges for deposit insurance, which i think makes a lot of sense, from charging each banks domestic deposits as it does now to charging its total liabilities, which makes far more sense. and, again, this is a great help to community banks across the country, of which senator tester's been a champion since his arrival in the and that a

member of our banking committee. the change will help ease the burden of fdic assessments on our community banks by requiring the largest banks in the country to shoulder a little more of the responsibility to rebuild and maintain a sound deposit insurance fund. the amendment is fundamentally about fairness, which i think is one of its most important features. community banks, as we all know, mr. president, have been victims of severe economic recession brought on by the behavior of major wall street firms, i might add. this has led to a high rate of community bank failures and a sharp increase in premiums necessary to rebuild the fdic's insurance fund. meameanwhile, the largest banks have been saved by tarp moneys and other government programs that were necessary, obviously, as we all know, to avoid the economic meltdown and catastrophe we were facing in the fall of 2008. so the change required by this amendment will lead to a far more equitable distribution of the responsibility to maintain a strong deposit insurance fund.

it also frees up resources for smaller banks to lend to households. so on every front, this amendment is a very, very positive contribution to this overall bill and one of the real features i think that members ought to keep in mind as we try to get this bill done. without this amendment, which i support and want to see includ included, this will make relieve even additional pressures on our community banks. so i thank my colleague from -- both our colleagues from montana and from texas as well as our new senate colleague from massachusetts and senator harkin as well for their contribution. as soon as we find a window right here to bring this up, then we'd like to see this amendment get adopted and be a part of the bill. mr. tester: mr. president? the presiding officer: the senator from montana. mr. tester: senator dodd, i very much appreciate your comments and i think you're right, it's about equity, it's about assessing the premiums for the fdic insurance fund to the banks that pose the most risk. community banks aren't among that. they're -- they've -- they've

played by the rules, they've -- they've done things right, and they haven't tried to manipulate the marketplace. so i very much appreciate your comments and i appreciate your support. mr. dodd: mr. president, i just want to -- the presiding officer: the senator from connecticut. mr. dodd: -- say we've got some potential action here i hope in a few minutes to move along. again, senator hutchison and senator tester is an amendment. my hope is we could also deal with at some point fairly quickly. and, again, it's one of those amendments where we've reached agreement i think on both sides, and at moments like that, my experience is, when you've got an agreement like that, we ought to move on it. i know there are others like, that the boxer amendment, we hope we can get up. senator shelby and i have worked on -- on a larger amendment to deal with the too-big-to-fail provisions. and, again, all of us top see language -- all of us want to see language but let me say in the absence of language, we've looked at an agreement. and obviously most of us need to look at the language before we can say that sat gore cli. but i'm satisfied, as i believe my colleague from alabama is, that we've reached an agreement on the too-big-to-fail

provisions which we hope will take that issue along with the boxer amendment with the -- with the boxer amendment takes that issue completely off the table as far as any further debate goes about title 1 and title 2 of the bill. we have other issues. senator gregg mentioned a couple that obviously are going to need some work and some amendments are going to be offered those. but in my view, the sooner we move along on the wruns where we have agreements -- ones where we have agreement, such as the hutchison-tester amendment, some ideas, i believe our colleague from maine, senator snowe, wants to offer as well demonstrating i think once again that we have the capacity to work with each other to actually advance what we're all trying to achieve here and that is reform of the financial system. so my hope is that rather shortly here we can debt to some agreements on -- we can get to some agreements on time and bring up some of these efforts and not have another day go by here when we're not actually dealing with specific amendments to this bill. so with that, mr. president, i don't see another member seeking recognition so i'll note the an sence a quorum.

the presiding officer: the clerk will call the roll. quorum call:

quorum call:

mr. dodd: i ask that the quorum call be dispensed with. officer without objection. mr. dodd: i ask that boxer amendment 3737 be set aside and that senator snowe of maine be recognized to call up two amendmenamendment ofs, number 3d 3757. that mo amendments be in order to either amendment that upon conclusion of debate with respect to the snowe amendments, they be set aside and the boxer amendment rio cur. -- rio cur. -- reoccur. the presiding officer: without objection. ms. snowe: thank you, madam president. the presiding officer: the senator from maine. ms. snowe: i ask unanimous consent that -- i guess the pending allot has been set aside -- and call up the snowe

amendment 375. the presiding officer: the clerk will report. the clerk: the senator maine, ms. snowe proposes amendment nmed 3755. ms. snowe: i ask unanimous consent further reading be dispensed with. the presiding officer: without objection. ms. snowe: and i also ask unanimous consent that senator slay hurricane katrina be added as a cosponsor. the presiding officer: without objection. ms. snowe: first of all, i would like to thank the distinguished chairman of the banking committee, senator dodd, for working with me so constructively as well as his staff on these two amendments that i'm calling up this afternoon. i think it's important to address these issues. it's so fundamental to so many small businesses across the country and for senator shelby as well for agreeing to the substance of these amendments. the first amendment that i had made pending would redos cumbersome restrictions on the banking industry that may infringe on america's privacy rights and curtail the ability of financial institutions to serve their customers. specifically, the underlying legislation contains language that would compel banks to make the following disclosures to the

consumer financial protection bureau: banks would have to report from each deposit-taking facility, including each individual awed mated teller machine, a record of the number and dollar amount of deposit accounts of customers; a geocoding by census track and a record of whether each customer's transact commercial or residential business. this type of detailed reporting imposes a regulatory cost on banks and provides an extraordinarily large amount of data to the federal government. while many have advanced the images of banks as monolithically large entities with thousands of employees spread across the gloark the vast majority of banks are small community-centered institution. for small community banks, every dollar spent in complying with government regulations is another dollar that cannot be iewbsed for customer service or extending credit. while these existing processes may be in place at large banks, and even if not their

procurement would be relatively inexpensive for a small bank, this 00 coo have a sizable impact on their bottom line and prove to be an extremely large regulatory burden. in addition, the federal government's track record when it comes to securing its citizens' private data is less than stellar n may of 2006, the department of veterans affairs lost some social security numbers and dates of birth pour more than 26 million veterans. i cannoi can wheag what would of this data that banks are required to track under this legislation was inadvertently lost. this legislation does contain a provision requiring that the personal identities of all customers be removed, but one slip could result i in the releasing of details b be revead to unscrupulous computer hear,. the credit national credit union association is supporting this amendment due to its regulatory burden and i'm pleased that we have reached an greement have it

in this legislation. i'd also like to ask unanimous consent that the pending amendment be set aside and to calm the snow amendment number 3757. the presiding officer: the clerk will report. the clerk: the senator from maine, ms. snow, proposes anne amendment numbered 3757. ms. snowe: i ask that further reading be dispensed with. the presiding officer: without objection. ms. snowe: this second amendment would fix an unintended consequence of the consumer financial protection bureau in the underlying legislation. which would have the effect of choking off small business's access to credit. according to the national federation of independent businesses federal 2010 survey on the state of credit, 16% of all small employers have a mortgage on their residence that helped to finance their businesses -- end quote. the small business administration's office of advocacy has calculated that there are nearly 30 million small businesses in america. taken together, this means that approximately 4.8 million small

firms, hardly an insubstantial number, rely on a home mortgage for their finances. many of these small business owners also make loan payments intended to reflect the cash flows of their business models. for example, inn keepers make larger payments during their on-season. the underlying legislation would prohibit lending products if the consumer financial protection bureau "has a reasonable basis to conclude that substantial injury is not outweighed by benefits to consumers." this means that if the consumer financial protection bureau that the injury of a loan product is outweighed by the benefit it might create, the bureau can prevent a financial institution from offering it. the problem with the way and manner of the way the bill is drafted, it does not take into account many entrepreneurs use home mortgage loans with cuss miced home payment.

overzealous regulators could determine if such home loans are abusive and thereby either prevent or headache it extremely difficult for financial institutions to continue offering these types of critical products. a loan it a borrower with balloon payments in june, july,ances and august and interest-only payments for the rest of the might look suspicious and be declared abusive. yet this is exactly how many seasonal firms in maine and throughout the nation finance their businesses. my amendment preserves the ability of small business owners to use their homes as collateral and make payments based on alternate lending cycles by clarifying the consumer protection bureau must confirm banks to alter products with customized payment terms for small businesses. i originally raised my concerns with the legislation and how it could inadvertantly harm small businesses during meetings with

treasury secretary tkpwaoeugt tpher and -- geithner and larry summers. they were both meat immediately receptive and agreed the bill could have those unintended consequences that could restrain access to capital for small businesses. the necessity of this amendment is especially critical given the small business credit crisis that continues to plague the nation. this fact which has been underscored by numerous studies, including the federal deposit insurance corporation survey, found that outstanding loan balances have dropped by the largest margin since 1942. furthermore, the federal reserve's april 2010 senior loan officers' opinion survey shows that only 1.9% of banks surveyed had loosened credit terms for small businesses in the past quarter, and that's the second consecutive quarter where we've had either 0% or 1% showing more flexibility in offering terms to

small businesses. that, madam president, is a very serious issue in terms of small businesses being able to lend. well, harming small businesses lack of access to affordable capital also has a ripple effect across the greater economy. in his april 14 testimony before the finance committee, dr. mark zandi, the chief economist for moody's annually particulars stated -- quote -- "small business credit is key to small business creation." by preserving financial flexibility for small business owners, this amendment assures that home equity will remain as a possible means for entrepreneurs to secure funds to start and grow their businesses. with small businesses adding two-thirds of all the net new jobs, this provision will help and assist small business owners create jobs, finance their businesses and help us reduce our current 9.7% unemployment rate. madam president, i think we understand how instrumental small businesses are to job creation.

we have to remain deeply concerned that the last three months we've had static unemployment, employment growth with a 9.7% unemployment rate. it is dependent on small businesses as the engine will drive this recovery and will lead us out of a jobless recovery because a jobless recovery is not a true recovery. so anything we do here, particularly in this legislation, that could affect small businesses' access to capital is going to certainly infringe upon our ability and impinge on it in terms of job creation. in fact, i reiterated that this morning in a senate finance committee hearing with treasury secretary geithner, indicated to him my deep concerns about the stagnation when it comes to lending. so it is important to improve upon these regulations that are embedded in the underlying legislation. i appreciate the chairman's effort in this regard and to be flexible and to address and to modify some of these issues and these constraints. i should say that the

independent community bankers has been supportive of this amendment because they recognize that these regulations could potentially be not only burdensome but duplicative and, therefore, could obviously exact and impose greater costs on their customers which obviously would be many small businesses that we truly do depend on for job creation. so i appreciate the chairman's efforts and working along with his staff to allow me to offer these amendments, to bring them up and to agree to them. with that, madam president, i yield the floor. mr. dodd: madam president? the presiding officer: the senator from connecticut. mr. dodd: madam president, let me thank my fellow new englander and colleague for her two amendments. they're very strong and positive contributions to our bill. she raised, i think, some very worthwhile points on particularly -- we have a tendency to think of small businesses maybe all operating the same way, and they obviously

don't. particularly the the senator from businesses which -- particularly the seasonal businesses which have moments of peak activity and moments when not much happens, whether talking about farming or tourism or other such industries. these -- this amendment she offered really makes a huge difference in that regard. so i thank her. on the consumer financial protection bureau to allow mortgages to be made on the basis of seasonal income i think is of great value. the second amendment, 3755, on the collection of deposit account data, again, i think it's a very good suggestion. the last thing we want to do is overburden the regulatory environment. intentions were, i think, sound enough. we have an awful lot of people that go into the sort of nonbank, nontraditional sources of support financially. that was sort of the motivation behind it. but i think her concerns about

this could be burdensome, and the last thing we need is more burdens on them, i think is very worthwhile. so i thank her for her contributions. i support these efforts. i believe at the appropriate moment we get things cleared up and adopt these amendments. and i thank her. madam president, at the moment i don't see another member that wants to be heard, so i note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:

mr. levin: madam president? the presiding officer: the senator from michigan. mr. levin: madam president, i ask unanimous consenth further proceedings under the quorum call be be dispensed with. the presiding officer: without objection. mr. levin: madam president, i come to the floor today to -- first i ask unanimous consent that i be allowed to proceed as though in morning business for three minutes. the presiding officer: without objection. mr. levin: madam president, i'm coming to the floor this

afternoon to congratulate the students and the faculty and the staff, parents at kalamazoo central high school in kalamazoo, michigan, who learned just today that president obama will deliver the kpwhepbsment address -- commencement address for their high school next month. it is a tremendous honor to host a president, particularly this president. i'm proud not only that ka -- kalamazoo is awarded this honor. more than 1,000 schools skpheutd an application -- skpheutd an application. evaluators narrowed the contestants down to six who are the finalists. public voting selected the final three, and the white house then announced today that the president had chosen kalamazoo central from those three finalists. i'm not going to make any claim

that i'm unbiased here, but i believe it is meaningful that this michigan school represents what is possible for a large urban public school, open to all students. kalamazoo, like many communities in my state, is not without its challenges. the tough economic times have given public educators an extremely difficult task. kalamazoo has had to cope with the effects of plant closings, corporate mergers and downsizings that meant administrators have had to do more with less. but the people of kalamazoo have not allowed that to stand in the way of excellence much kalamazoo is the home of the kalamazoo promise. every graduate of the kalamazoo public schools is entitled to a scholarship covering a portion of their higher education costs at a michigan the university up to 100% for those who attended

the michigan schools. it is thanks to the generosity of a small group of donors, more than 90% of kalamazoo high graduates have gone on to chemical. this commitment to quality education for all is nothing new. in 1972 a small group of property owners convinced that they did not need to pay taxes to support a public school sued the kalamazoo school board. in the kalamazoo case, as it became to be known, the michigan supreme court upheld the establishment of a public high school supported by tax dollars and opened to all. the case settled once and for all the status of public education in michigan and its been cited by courts throughout the country where public education has come unattack. today's announcement adds to the

rich history of public education in kalamazoo. it is a fitting honor for the students, educators and parents and citizens of a community that has once again demonstrated its commitment to academic excellence. i spoke after today's announcement with the principal of kalamazoo high, vin washington, he told me when the news came, it brought such cheers an excitement to the high school and even a few tears, that the students' word spread quickly throughout the entire kalamazoo community. a justifiably proud community. we look forward to president obama's visit to kalamazoo and i know they will offer the best in hospitality and an example for other schools to follow. madam president, i yield the floor.

a senator: madam president? the presiding officer: the nato fro texas. mrs. hutchison: madam president, i rise today to speak on my amendment with senator tester because we are trying to ensure that safe community banks and large financial institutions are treated equally. i heard senator tester's speech on the floor just a little while ago on our amendment and i am very pleased that we are able to put this amendment forward. i'm pleased that the chairman said he supported my amendment and i think that that is a great first step for us, for the chairman to support an amendment because we all know that this bill came to the floor on good faith. good faith that we would have amendments and that we would try to address the legitimate concerns of many in our country from small business people to

dentists to food manufacturers and also small bankers, community bankers. we don't want -- and i know the chairman doesn't want and no one wants to hurt our economy with financial reform. but i also think i can say that we all have a goal of good reform that does eliminate some of the things that happened a couple of years ago that american taxpayers are paying dearly for right now. we don't want bailouts. we don't want takes pair funded bailouts of financial institutions that have taken great risks and we certainly don't want to hurt the economic system which is not all that great right now. we all must admit. and i think that going forward we must address the issues that cause the financial meltdown and stop the derivatives, stop the -- not stop the derivatives, but stop the misuse of derivatives and get our financial house in order while

also protecting our financial house. so that is what the hutchison amendment tries to do. we want to ensure that large banks pay their fair share in deposit insurance premiums and community banks are not over assessed and, therefore, can continue to provide lending an depositry services to credit-worthy american families and small businesses. i'm very pleased that we have a group of cosponsors, senator tester and i, are joined by senator burris, senator conrad, and senator harkin in this amendment. while much debate has centered on systemic risk and the $50 billion fund to unwind large financial firms, the hutchison-tester amendment focuses on bringing parity to the existing fdic insurance deposit fund. our amendment will reform the fdic's assessment base to ensure

that banks pay assessment into the deposit insurance fund based on the risk they pose to the banking system. currently the fdic levies deposit insurance premiums on a bank's total domestic deposits. unfortunately, domestic deposits are not the best measure to analyze the safety of banks. financial assets, other than deposits, also create risk in the system, but are not considered in determining fdic assessments. yet, because the system does not charge assessments based on assets, it doesn't fairly assess all the risks in the system. community banks with less tha than $10 billion in assets rely heavily on customer deposits for funding which penalizes these safe institutions by forcing them to pay deposit insurance premiums above and beyond the risk they pose to the banking

system. how? despite making up just 20% of the nation's assets, these community banks contribute 30% of the premiums to the deposit insurance fund. at the same time large banks hold 80% of the banking industry's assets but pay 70% of the premiums. we must fix this inequity. this is a clear imbalance. we must ensure that banks of all sizes pay deposit insurance premiums based on the risk they pose to the system. the hutchison-tester amendment will do this by requiring the fdic to change the assessment base to one which is a more accurate measure, a bank's total assets less tangible capital. this change will broaden the assessment base fro from $8.5 trillion t

to $11.5 trillion. and it will better measure the risk a bank poses. throughout senator dodd's legislation, a bright line asset test is used to measure risk to the system. a bank's assets include its loans outstanding an securities help -- and securities help. one need only look back over the last two years to realize that assets show a bank's exposure to risk. it wasn't a bank's deposits that contributed to the financial meltdown. instead, the meltdown was caused by bad mortgages were packaged up then into risky-backed mortgage securities and used to creates derivatives. these risky financial derivatives and the large banks which created and held them were what led to the financial crisis. our amendment is especially timely because of the great strains placed on the deposit insurance fund as a result of the crisis. numerous banks have failed over

the past two years forcing the fdic to dip more and more into the fund to cover insured deposits of customers. in february 2009, this year -- last year, with the fund already in a precarious state and more failures expected, the fdic made an unprecedented move and levied a $5 billion special assessment on all insured institutions. originally the fdic intended this assessment to be eight basis points of an institution's domestic deposits. this assessment stood to penalize community banks -- despite having nothing to do with the risky practices that caused the crisis and ensuing bank failures. to add insult to injury, community banks would have paid a disproportionate amount based

on domestic deposits in the assessment base. the fdic had the regulatory authority to broaden its base to total assets. i raised this point with the fdic following the announcement of their assessment. i was pleased that the fdic listened. they altered their special assessment to a base of total assets less tangible capital. as a result, the assessment was lowered to 5% of assets, a move which ensured that large banks with heavy assets paid an assessment which fairly accounted for the added risk that they posed to the banking system. so i really applaud sheila baird for making that decision. but the broader base was only used one time and the fdic has now reverted to the tradition of annual premium based on domestic

deposits assets base. the dodd bill continues to give the fdic the authority to continue using this narrow base of domestic deposits. the hutchison-tester amendment will put in place in statute that we will have the fair assessment that will be the mandate. there will not be options to create this unlevel playing field between the big banks and the community banks. it just makes sure that the community banks will never have to pay a higher portion of the deposit insurance when they have a lower amount of the assets. our amendment levels the playing field. since the beginning of 2008, 229 banks from across the united states have failed. and the cost of these failures have left the deposit insurance fund below the statutory limit

requirement despite last spring's special assessment. the discouraging state of the under has led the fdic to make, yet, another unprecedented move. the fdic is requiring its banks to prepay deposit insurance premiums all due over the next three years by the end of this fiscal year. mr. president -- madam president, we must act now to ensure that these prepaid deposit premiums and all premiums in the future are assessed proportionately so that banks pay premiums based on the risk they pose. i ask my colleagues to support the hutchison-tester amendment to bring the additional parity between banks on wall street and on those on main street. i thank my colleagues who have cosponsored the amendment. i thank the chairman for supporting the amendment. this is one step that we can

make and i would love for the first amendment taken up to be one that would have bipartisan support and i hope it's overwhelming support because our community banks, who did not participate in the financial meltdown, who are not at fault, and, yet, are paying a much heavier price. but if you ask the small business people in texas, and probably in most parts of the country, where are they getting the loans that they need for their businesses to continue operating? mostly it is the community banks. it is the community banks that have stepped forward in this crisis and done the best they could to make sure that in every way possible we keep our economy going with the small businesses that are the economic engine of america. so, madam president, i hope that we can have a time agreement very shortly and be able to vote on the hutchison-tester amendment and look forward to really working on this bill for the next few weeks.

there are many amendments that i think are quite legitimate that will help this bill to -- to be one that will fix what was bad in our economic system that caused the financial meltdown. but at the same time, will protect the legitimate uses of derivatives, the legitimate banking concerns that our community banks, our main street banks, our small businesses need, and certainly not to create another new level of government bureaucracy piled on top of banks that are already regulated at community bank level. and i just hope that we don't do overkill like i would say is the sarbanes-oxley bill that was passed in the aftermath of the enron scandal. and i think there was overkill that hopefully we will be able to go back and, again, settle out so that we keep the -- the

bad things from happening while assuring that our economy can go forward and compete not only in the communities across our nation, but globally. thank you, madam president, and i yield the floor. the presiding officer: the senator from connecticut. mr. dodd: let me -- let me thank my colleague from texas. and i already commented when senator tester from montana spoke, but let me again thank her and thank the senator from montana and others who are cosponsoring this amendment. i think it's a very solid contribution to our bill. again, i think the idea of considering the total liabilities obviously makes a lot more sense. it alleviates the burden financially on smaller institutions. it's -- larger institutions have the capacity to share more equitably in these kinds of costs. it pains us every friday. i know all of us have the saying whether it's in our state or not. we read those accounts as we have seen all too often in the

last year and a half of small banks, others not so small having to close their doors. the pressures on the federal deposit insurance corporation are mounting. again, you don't want to keep on adding assessments on institutions that are already trying to lend out to businesses and to their communities and to provide mortgages and the like. so this is a very constructive amendment and a very solid idea i think to add to this bill. so i want to thank the senator from texas and the senator from montana and the others who have been involved in this in putting it together. as soon as we work out these time agreements here, hopefully we can take a few minutes and conclude, give the senator from texas a couple of minutes before we vote on this to be able to share her thoughts, but it's exactly the way, let me say, madam president, that i want to manage this bill if i can. there is a lot of commonlyity and common interest. too often i think the public only sees the fights we have. they don't realize how many -- at least making the efforts to try to reach agreements with each other. obviously, it's not as

interesting a story when we agree on things to get done. that's not quite as exciting as when there is a brawl on the floor of the senate over some issues. so i appreciate the media's appreciation of the brawl, but my intention is to limb the brawls and to try to get us to the point where we have the common interest here in putting a good bill together. and her contribution to this amendment does exactly that. as our colleague from maine a moment ago in talking about her amendments do as well, and senator warner has been tremendously helpful in this bill in crafting from our committee. i see the senator from rhode island as well. i thank our colleague from texas. mrs. hutchison: mr. president, madam president, i just say there is certainly one thing we can all agree on, and that is our assessment of the media and what they really like to write about, but i do hope that we can make progress on this bill and do something good for our country and the economy because i think that we have the same

goals, and if we just really work for the next three weeks or so trying to get all these amendments through, that would be great. thank you. mr. dodd: let me, madam president, say something if my colleague would yield. one of the important points about this amendment, there will be amendments offered in which we will take things out of the bill or put things in. this is an idea which has great value as a free-standing idea in many ways. it's -- and that's why it has great value. this is something that we clearly need to do. and talk about the other parts of the bill, what we try to do, but this is an idea that brings value to this bill, significant value, in my view, in light of the economic circumstances we're in. so i really appreciate this amendment more than just the kind of strike something in the bill or modify something here. this adds real value to the legislation. i'm very appreciative of that. mr. whitehouse: madam president? the presiding officer: the

senator from rhode island. mr. whitehouse: thank you, madam president. i had planned to offer an amendment this afternoon, but i have been informed by the managers that the amendment slots are full at the moment, so i just wish to speak about my amendment and then return to the floor at the earliest opportunity to offer it for a vote. let me first say to the chairman of the banking committee that the bill we are currently debating would do great things to regulate an out-of-control wall street, to end the pernicious practice of too big to fail, and to provide for regular consumers independent financial protection agency to look out for their interests against all the big sharks and lobbyists and lawyers who are ganged up against them on consumer debt. and i appreciate the work that chairman dodd and chairman lincoln have done and look

forward to continuing to work with them on this important piece of legislation. what my amendment would do -- by the way, it's cosponsored by senators merkley, durbin, sanders, levin, burris, franken, brown of ohio and menendez, and we are continuing to solicit cosponsorshipships and we're receiving endorsements from outside of this body. the bill would -- the amendment would address an area that is not yet covered by the wall street reform bill, and that is runaway credit card interest rates. it would do so not by imposing any new restrictions on lending, but rather by restoring historic state powers, powers that were eliminated in the relatively recent past. madam president, when you and i were growing up, a credit card offer with a 20% or a 30% interest rate might have been a

matter to bring to the attention of the authorities. such interest rates were illegal under the laws of most if not all of the 50 states. laws against charging excessive interest rates go much further back than our youths, however. the code of hamarabbi in the third millennium b.c. limited interest rates. hindu laws of the second century b.c. limited interest rates. roman law limited interest rates. and so when america was established, there was a long tradition already of protecting citizens against excessive interest rates, and that tradition carried to the founding of the united states of america. and for the first 202 years of our republic, each state had the sovereign power to enforce usury laws against any lender doing

business with its citizens. during those two centuries, our economy grew and flourished and lenders profited while complying with those laws. then in 1978 came an apparently uneventful supreme court case. it was little noticed at the time it was decided. the case was called marquette national bank of minneapolis versus first of omaha service corporation, and the supreme court there had determined what the word located meant in an old statute, the national banking act of 1863, whether it meant that the transaction between a bank in one state and a consumer in another state was governed by the law of the bank state or of the consumer state. the resolution was that the term

located referred to the location of the bank and not the location of the consumer. this meant that a transaction between a bank in one state and a consumer in another state, the transaction would be governed by the state where the bank was domiciled. well, it did not take long for the big banks to see the loophole that this very narrow decision created. this loophole was never sanctioned by congress. apparently, never intended by the supreme court, but it was a significant loophole. it allowed banks to for the first time in the nation's history avoid interest rate restrictions by the states of their consumers. it allowed them to get through that loophole by reorganizing as national banks and moving to states with comparatively weak

consumer protections. once the banks figured out that loophole, what's called a race to the bottom ensued. bank credit card centers moved to states with the worst consumer protections, and in some cases states made their consumer protections even worse in order to attract that business to their state. so the result of that is that today the credit card divisions of bah major -- of major banks are based in just a few states, and that deal with the bank state causes consumers in all our other states to be denied their traditional historic, lawful protection against outrageous interest rates and fees. with millennia of interest rate protections behind us and hundreds of years of protection by sovereign states of our nation, the current system that has taken -- developed since

that 1978 decision, it's the current system that is the oddity in our history. my amendment would do nothing more than reinstate the historic, long-standing powers of our sovereign states to protect their citizens against excessive usorious interest rates. let me be clear about what this amendment would not do. it would not mandate anything. it would not even recommend interest rate caps, and it would not impose any other lending limitations. it would just restore to our sovereign states the power that they enjoyed for over 200 years from the founding of the republic, the power to say enough, the power to say that 30% or 50% or 100% is too much interest to be charged to its

citizens. madam president, the current system is unfair to consumers, but it's also unfair to local banks, banks which continue to be bound by the laws of the state in which they are located. a small local bank has to play by the rules of fair interest rates. gigantic national credit card companies can avoid having any rules at all. that is not fair. we need to level the playing field to eliminate this unfair and lucrative advantage for wall street banks against our local main street community banks. to make sure that lenders can't find another statute to use to once again avoid state law, my amendment would apply to all types of consumer lending institutions and not just national banks. so no more changing your charter or your means of business to avoid limitations on you gouging customers. my amendment gives state legislatures ample time to revise their usury statutes if they wish and give lenders ample

time to adjust. the amendment would not go into effect until one year after the president signs the bill into law. in the meantime, it's worth noting that most states' usury laws are around or above 18%, and that presently federally regulated credit unions do quite well under a federal 18% interest rate cap. so there should not be a large shock when this amendment goes into effect as law. it is the 30% and over interest rates that are the recent anomaly, the historic peculiarity, the oddity in cruelties to consumers that states have traditionally been able to defend against. we should go back to the historic norm. the way the founding fathers saw things under the doctrine of federalism and close this modern bureaucratic loophole, a loophole that allows big wall street banks to gouge local citizens to compete unfairly

with local banks. so i ask my colleagues to continue considering this amendment and urge them for -- to support it. i think it is a good amendment, and i see the distinguished majority whip on the floor who is a cosponsor, and i would yield my time so that he may speak. mr. durbin: i thank the senator from rhode island and i'm happy to join him as a cosponsor. it wasn't that the senator wouldn't remember. when we had a debate on the floor about credit card reform, and people across america said, you know, there are some things going on with credit cards that just aren't fair and right. we need you to police these credit cards and make sure they don't do outrageous things and charge people unreasonably. i think we made some progress in the law that we passed, but we made one critical error. we gave the credit card companies a long grace period to adjust to the changes. and if you noticed over the last year or so, you will receive

notices -- i got them at my home in springfield, illinois, from the credit card companies, saying in almost every instance, they were going to raise the interest rates on the credit cards before the new law went into effect. my wife saved all of them and said mr. smart senator, how did you let this happen? well, it turned out that we had no control over those interest rates during that period of time and very little control after the reform bill. what the senator from rhode island is challenging us to look at is this basic question. what is a reasonable amount to charge for an interest rate? and his decision -- and i concur with it -- is let's let each state make that decision. 32 years ago, the supreme court indirectly removed the authority of states to make that decision. they said if your credit card company is located in state x, you are bound by the laws of state x when it comes to interest rates for all of your customers across the united

states. you don't have to change for a customer living in arkansas which has a cap on interest rates. you don't have to change for a customer living in illinois. you just take the law of state x, and that is the law you apply to all your customers. now the senator from rhode island says why would we allow them to do that? why don't we let the standards be established by each state? he doesn't dictate what that standard will be, whether it's 5%, 10% or 100%. that still is going to be up to the state. and he doesn't say it will happen overnight. he gives a year for them to phase it in. it also is going to level the playing field for a lot of community banks and local financial institutions in each state which are bound by the state law. when the community banks in illinois are doing business with me as a resident of illinois, there are laws that can apply, and other states as well, but when it comes to the credit cards, they can charge me whatever they want because the states they have said they do business in have no rules

whatsoever. so the net result of this most people understand. if the interest rates are not regulated, if they literally go to the high heavens, people end up paying an enormous sum of money. the penalties involved in them go through the roof as with. i think this is a legitimate issue and subject to raise. i believe, as the senator from rhode island does, that there is a reasonable level of interest rate -- interest rates where a reputable institution can make a good profit. and beyond that, it turns out to be a trap that a lot of people fall into because they don't realize there's no ceiling whatsoever on the interest rates that they're being charged. there will be other amendments on this bill before us, this financial stability act bill. this is one that i think most people will understand completely. the law of your state will determine your interest rate that you are going to pay on your credit card, not the law of some other state. i don't think it's an unreasonable amendment. i think it's a very reasonable one.

i think it reduces the costs for families and businesses i and te life that they lead and it gives to each state the authority to decide what that limit will be within its state. for those who argue against federal control, the senator from rhode island has taken this right back to the local level where the decisions will be made. i'm happy to support his amendment and i encourage my colleagues to join us in cosponsoring. mr. whitehouse: mr. president? the presiding officer: the senator from rhode island. mr. whitehouse: mr. president, let me thank the distinguished majority whip for cosponsoring my legislation. i appreciate his support immensely. and he has a wonderful way of making things clear and helping people to understand just how basic and simple and historic amendment this is. it takes us back to the way the country was through the vast majority of its history. greatest generation served in world war ii and came home and, you know, went to college and built the society we now live in now under these rules.

george washington and his men at valley forge served under thighs rules. the civil war and korean war took place under these rules. there's 220 years of solid history behind this. and so i will close with an appeal to my colleagues to continue to show interest in this piece of legislation and particularly my colleagues on the other side of the aisle. if you believe in states' righ rights, this is a good piece of legislation. if you believe in states as laboratories of democracy, as centers of innovation, as places where you multiply times 50 the chance of getting a right answer when you allow a little bit of innovation to take place, you should support this legislation. if you take comfort in more than 200 years of solid american history, proving that this is the right way to go, you should support this amendment.

if you want to protect consumers in your state from out-of-state banks that are out of control and have no restrictions on the interest rates that they can charge your consumers, you should support this amendment. and if you think the federal government has too much power and you want to have your state have a little bit more say about what can take place with its own citizens, you should support this amendment. so i look forward to continuing to push for a vote on this amendment. i think it is an important one. i thank the president, and i yield the floor. i note the absence of a quorum. the presiding office quorum call:

quorum call:

mr. schumer: i ask unanimous consent that the quorum you be dispensed with. the presiding officer: without jection. mr. schumer: more than 18 months after the collapse of lehman brothers put our financial system into a deep freeze, we're at a crossroads in history. we can continue to turn a blind eye to the very real threat that excessive risk taking an reckless deregulation posed to our economy or we can choose to learn from the financial disaster that nearly brought our economy to a screeching halt. i urge my colleagues to choose reform. we can't wait any longer to take

on the challenge of overhauling the rules of the road for our financial system fl we have a regulatory system based in -- based on the 1930's and 1970's and a financial world in the yeert 2010. we have an economic imperative to pass a strong set of financial reforms. the shock waves in the real economy that resulted from the financial crisis are still being felt today by the millions of americans who can't find a job or are facing foreclosure, who ant cannot a pay their children's college tuition, or have to put off retirement because their savings have been decimated. mr. president, we have 9.7% unemployment in this country, not because of any reform proposal that has yet to become law, but because of the irresponsibility in the financial system and a broken-down financial regulatory system that was last updated in the 1930's and allowed too many firms and even whole markets to slip through the cracks.

if we do nothing, we'll surely find ourselves facing a similar crisis in the not-too-distant future. senator dodd and our colleagues on the bank committee have put together a bill with strong, forward-looking reforms that make our financial system stronger and more stable, so that it can return to its fundamental role, helping our economy grow and innovate and create jobs. the bill lays out new rules of the road, fills gaps in our regulations, and protects consumers and investors. most importantly, by creating a new resolution authority, which i know my colleague from i have sitting on the floor here now has worked very hard on, this bill ensures that taxpayers will never again have to bail out large financial institutions, firms that fail will fail, period. there'll be mo rescue or bailout; only an orderly unwinding that forces

stockholders and bondholders to suffer, not taxpayers. as a new yorker, mr. president, i see the connection between wall street and main street every day. the financial industry is responsible for 500,000 jobs in new york stivment and moc most of them are not the kind of fancy high-paying jobs you read about or see in the movies. the average salary for these jobs is about $70,000. but i realize that the financial system plays a special role far beyond manhattan. there are many analogies. it's the heart of the comirks the lifeblood, the slashingtory system, the engine of the economy or the oil that greases the gears. whatever image you choose, it's critical to helping businesses grow and innovate and create new jobs. and so our reform must be forward-thinking and strong but not punitive or vindictive or vengeful because that will hurt the whole economy. with the special status of the

financial system comes special responsibilities. the industry has reacted to many of the new proposals by arguing that they will kill innovation. but just because we can make cars that go 200 miles per hour doesn't mean we shouldn't have speed limits. in general, i think this bill strikes the necessary balance between maintaining an innovative and competitive frchtion system while ensuring that the recklessness that occurred by some on wall street will never again threaten the financial health of americans on main street. make no mistake about it, these reforms will be good for both wall street and main street. the bill will create a financial system where consumers and investors on main street can have confidence in the products and services they receive, and where they put their money. a financial system focused on getting capital into the real economy so people can start new

businesses. at the same time, the certainty and stability that reform will provide will make our financial system even more attractive to investors around the world and will help keep america at the forefront of the world's economy. i believe, mr. president, this bill will strengthen jobs and income creation in my state of new yorker not weaken it, because it will make the system stronger, it will make people have more confidence in that system, and money from around the world will flow in to new york, which is the capital of the financial system for our nation and our world. the bill senator dodd put together is stronger in many ways than most people expected it to be just a couple of months ago. it contains several core reforms that will go a long way towards fixing the problems that crept up in our financial system over decades. the bill would make sure taxpayers never again have to foot the bill with large institutions -- when large

institutions fail, make sure every large institution has a regulator looking over its shoulder for excesses and a council of regulators looking at risks across the whole system. makessures derivatives, which when abused can tut the whole system at risk, are traded transparently at the very least. i should ♪ that this is a huge change from the way the derivatives market works now. weerktd we could go from a totally unregulated market to one that is recreated, where regulators know every trade that happens and risks can't build up in the system without anyone knowing. the bill will make sure there are stronger consumer protections to ensure institutions can't take advantage of average americans in their mortgages, credit cards, or other financial sphruments. and it would give investors additional power to hold their boards accountable so they're not asleep at the wheel next time their management is slowing up the company with risk. like many of my colleagues,

however, like many of my colleagues, however, i believe there are areas of the bill that i'd like to see improved and i'll to inwork with my colleagues on the floor to do that. first, i'd like to see even descrorng consumer protection in the financial services area, and i'm working with senators reid and durbin and others to strengthen this part of the bill. this is an area where i've worked hard for decades in the house and senate. it is clear to me we can't force congress to pass a new law every time a credit card company figures out a way to skirt the old laws. we need an independent agency whose only mission is to protect consumers and that agency needs to enforce rules across the board for paul financial institutions. i'm sponsoring an amendment to expand the enforcement authority of the consumer protection bureau over all nonbanks like payday renters and rent-to-own companies to make sure consumers are protected no matter who they rely on for financial services.

mr. president, in the area of consumers, small companies can rip off consumers just the way large companies can. and while large companies can pose a greater risk to the system as a whole, small companies can propose every bit as great a risk to the individual consumer. and the distinction between the two is unfair. the bill could go further in dealing with credit rating agencies, and i'm working with senator franken on a proposal that would reduce the conflicts of from in their current business model. there are other changes i will propose as well. in conclusion, we have many tasks in front of us if we're tee rebuild the american economy. but a stronger ffntion system focused on the needs of the real comu is crucial. there should be no doubt that part of putting us back on the path to prosperity requires instituting smart, thoughtful financial reforms. i eld the floor.

mr. sessions: mr. president? the presiding ficer: t senator from alabama. mr. sessions: i just would like to share a few remarks about the recent arrest of the individual in times square and the allegations that he was involved in a plot to kill a lot of americans. i've been asked about several times recently, and i think i was incorrect in making comments to reporters and even to friends about the precise legal situation that we're involved with. let me just briefly summarize what i think the current state of the law is and all of us will be better able to respond to the questions that we may hear. on christmas day bombing suspect, mr. abdulmutallab, it

was established pretty quickly as an unprivileged enemy alien combat ant and was, thus, eligible to be tried for his offenses and detained as person of war against the united states, someone who could be held as a prisoner of war if the military so chooses for as long as the hostilities continued, just like we did in world war ii and every war the united states has been a part of. also the phreult would be -- the military would be entitled to try mr. abdulmutallab, the christmas day bomber, in the military by military commission. that's what you would normally do and that's what was done in

world war ii involving the nazi saboteurs. i felt the administration made a mistake when they treated him as a civilian criminal -- that is mr. abdulmutallab -- and provided him miranda rights, appointed him a lawyer, which you have to do if you're going to treat somebody as a criminal rather than an unlawful enemy combatant. i believe firmly that that was an error, and the normal procedure should be for these type individuals to be tried or detained by the military because they're not criminals. they're warriors. they have begun to use the phrase now "unprivileged enemy belligerents." originally unlawful enemy combatants was the phrase they used. but regardless, we're talking about essentially the same thing. now, yesterday the the times

square bombing suspect, faisal shahzad raises similar questions and my initial thought was since the supreme court had clearly held that even though he's an american citizen, that the supreme court has recently reaffirmed the fundamental principle, an american citizen can be against the united states, a fact abraham lincoln never had any doubt when he took people prisoners. or i guess george washington during the whiskey rebellion he never had any doubt he had the ability to attack people who were at war against the united states. fortunately he didn't have to go so far. but that's the kind of thing the supreme court reaffirmed in hamdi. in the hamdi case, chief justice

san -- justice sandra day o'connor who wrote the opinion, made clear that a citizen who has taken up arms and hostilities against the united states can be designated as an unlawful enemy combatant -- unlawful enemy belligerent is the phrase she used. she wrote the opinion which said -- quote -- "there is no bar to this nation holding one of its own citizens as an enemy combatant. a citizen no less than an alien, can be 'part of or supporting forces hostile to the united states or coalition partners and engaged in an armed conflict against the united states. such a citizen if released would pose the same threat to returning to the front during the ongoing conflict.' that's perfectly sound and perfectly reasonable. she concluded that mr. hamdi who

was captured alongside the taliban in afghanistan, but who was an american citizen, could be detained for the duration of the hostilities authorized by the authorization of military force that congress passed authorizing military force against him in order to keep him from rejoining the enemy. now, we've had quite a number of people who have been released from guantanamo who have been captured in the process, who have returned to the combat and attack us. so it's clear that under hamdi, the administration has the authority to detain the times square terror suspect as an unprivileged enemy combatant if he can be linked to our terrorist enemies within the definitions of the military commissions act. but i want to be clear, this is a distinction here, that this

suspect, unlike the christmas day bomber and the 9/11 plotters, cannot be tried -- cannot be tried, can be detained but not tried -- via military commission under current law. in the previous conflicts, military commissions were used to try civilians who took up arms against the united states in ways that violated the rules against rules of war. for example, classic court case: herbert hopt was one of the nazi saboteurs who was prosecuted via military commission after plotting to blow up targets within the united states in the early months of world war ii. he was a naturalized u.s. citizen and the united states supreme court in the landmark case of ex parte querin allowed the commission to go forward with his trial, and i think he was executed.

a number of people involved in that, most of those who sneaked into the country by submarine, as i recall off our coasts to blow up our cities and infrastructure and kill civilians, they were tried as, in violation of the rules of war very much unlike a german soldier who was captured somewhere at the battle of the bulge. they were detained as prisoners of war throughout the war. because these people had violated the rules of war, they could be tried. but what happened in the hopt case ex parte querin is no longer law. since 2006, the military commissions act that congress passed required that, and made it clear that the military commission trials are only available for alien unprivileged

enemy belligerents. accordingly the times square bombing suspect who appears to be a citizen must be prosecuted if he is prosecuted and tried at all, in federal court if the reports are accurate that he's a citizen. so i just want to be sure that i think we've got this matter straight. i believe that an alien unlawful belligerent who is captured should not be treated like a criminal. they should not be appointed a lawyer that day to tell them don't say anything. they shouldn't be advised of their rights because they're prisoners of war. and if their actions amount to a violation of the rules of war, an alien unlawful enemy belligerent can be tried in

civilian court if we choose or tried by military commission. but if they are a citizen and they are caught under these circumstances, they can be detained in military custody, but they can't be tried by military commission. they can only be tried by the civilian courts in civilian trials. with regard to the matter of miranda warnings, miranda is not a constitutional requirement. it was never part of the american law until recently, 40 years ago, 50 years ago. no nation in the world, i think, except perhaps one -- i forget which one -- provides that you have to warn people that they have a right to remain silent. you can ask them questions. they can remain silent. you can't force them to talk. but you don't have to read them

the constitution before you ask them questions. but we do. and so, to me, it makes no sense that we would provide this extra constitutional right to unlawful enemy alien combatants like the christmas day bomber. they should be detained by military custody. if need to be tried, the choice should be made whether to be tried in civilian courts or military courts. and the ability to obtain good intelligence about the operation is more enhanced, in my view, without any doubt, even though sometimes people who are given miranda rights talk. but there's no doubt you'll have less people talking if they're appointed lawyers and if they are read miranda rights than if you don't. and since war is won and lost so often on the question of who has the best intelligence, we should

not provide lawyers to individuals who are at war with us and seek to destroy our country and kill innocent men, women and children. mr. president, i think that's the basic state of the law today. i have been a bit confused myself, and i'm glad my staff has helped me get correct. i thank the chair and yield the floor. mr. johnson: mr. president? the presiding officer: the senator from south dakota. mr. johnson: mr.resint, this week, as the senate moves forward with consideration of wall street reform legislation, i'm optimistic that legislation will be passed that performs -- that r-rpls our financial system -- that reforms our

financial system and prevents those who nearly brought down the economy from ever being able to do so again. as we have heard many times over the last several weeks, the bill creates a mechanism to monitor the economy for nationwide trends and risky patterns that could lead to problems. it establishes abconsiderable watchdog dedicated to identifying and preventing lending trends that are harmful to consumers. in addition to preventing future bailouts, the bill also requires that financial speculation be done in the open. while addressing the underlying problem that allowed banks to go casino crazy in the first place. it also brings a transparent marketplace. i believe all these changes will

make american financial system more transparent, accountable and responsive to future risks. it has been discourage to go see some members -- it has been discouraging to see some members and special interests oppose these changes. in fact, i believe it is hard to argue against these reforms with a straight face. yet, those against reforming wall street have been doing just that, asserting that making markets fair and transparent will somehow hurt our economy. these reforms will help -- not hurt -- american consumers, small banks and small businesses. as i said before, our community banks in south dakota and across the nation have acted responsibly. it was the actions of large interconnected financial

institutions that endangered our economy and received bailouts. the bill culminates that likelihood that the government would once again be forced to throw dollars at wall street or run the risk of bringing down our entire economy. the community banks in south dakota and across the country are a vital part of our economy. as we reinvest many back into the communities they serve. this legislation will help community banks since it levels the playing field between banks and nonbank financials such as mortgage lenders. in addition, the bill fills many regulatory gaps, helping solve the problem of charter chopping, meaning financial institutions will no longer be able to choose

the instrument they think will be the trendiest. i would also like to see the legislation go further in some areas, such as the registration of private equity and venture capital with the s.e.c. in addition to hedge fund registration. i also believe the legislation fills important regulatory gaps relating to insurance regulation. this legislation establishes the office of national insurance and gives this office the ability to negotiate international agreements, a test that is currently a struggle for our country in a global marketplace. these provisions will give it a better picture of what is happening in the national and international industry, something we do not have now. we should resist efforts to take away authority from the office

of national insurance. this bill has had substantial input from republicans and democrats. as this legislation process moves forward, i hope that bipartisan language can be retained, that we can find common ground and a national preemption and seek enforcement and additional good ideas from both sides of the aisle can be incorporated into this legislation through the amendment process. i believe all members of this body want to support bipartisan legislation to reform wall street, but as we seek bipartisan consensus, we should assess all amendments from a main street commonsense perspective. south dakota's farms, ranches

and businesses operate with transparency and accountability. it's time for that same transparency and accountability to be extended to wall street. taxpayers, consumers, and businesses all across our nation have been affected by the gambling of wall street. the fallout of wall street's recklessness has affected all of us whether it is job loss, foreclosure, loss of retirement funds, or decreased access to loans or other type of credit. nearly two years have passed since the financial crisis. it's time to move forward and fix our failed system of financial services regulation. a young south dakotan was in my office last week and said that he thought this bill represents south dakota's values because he was raised with a value that you

should be careful with your money and even more careful with someone else's money. that's something that wall street forgot. any legislation that passes this body must make our -- muss make us safe -- must make us safer, remind wall street that our nation's economy is not something they are free to gamble away. mr. president, i yield the floor. mr. dodd: mr. president? the presiding officer: the senator from connecticut. mr. dodd: mr. president, i want to say to my friend how much i appreciate his involvement and support and effort over the past many, many months that we've worked on this -- on this area since the collapse of our economy back in the fall of -- well, beginning earlier than that. as we witnessed early in 2007, the mortgage crisis occuring across the country. senator johnson's been

tremendously helpful and valuable. he's been my seat mate in the banking committee and sitting next to each other for the past three years and working on those issues together. he contributed significantly to the product before us. i want to thank him for it. we have some work to do in the next number of days on this bill. but it's a good bill and i appreciate his comments on how it is a bill crafted not by one member or a chairman of a committee, but by a group of us in that committee, democrats as well as republicans, who contributed to this bill. and so i thank him for his work. mr. president, i'd note the b absence of a quorum. the presiding officer: the clerk will call the roll. quorum call: