the property taxes. as you look across the state, how much of the stimulus money than we are not receiving, is that included in the $6 billion deficit that we are facing? host: this will be your final thought. go ahead, please. guest: we could spend five minutes on this one, but i will be quick. 10 years ago, the state supported public school system is funded in part of local revenue, as the gentleman implied, principle of property tax revenue as well as state funds. 10 years ago, the state share was about 51% and the local share was about -- let me back up. 59% and 41%. that relationship is not a mirror image were now the local

funds constitute the majority of of the dollars that go into funding public education. is there a relationship with your property taxes? your property taxes have gone down because of the assessed values of the home's going down. it is the florida legislature that determine the deep required local effort. they said that rate. -- they sat that rate. they determine how much in property taxes should go to funding the florida state wide k-12 education program. host: from tallahassee, john hall, the executive director for the florida center for fiscal and economic policy. thank you for your time. we will see you back here tomorrow at 7:00 a.m. eastern for more "washington journal" as we do every day. we will look at the state of pennsylvania as part of our program on fiscal and economic

conditions. we will also speak to foreign policy magazine regarding states around the world. we will have a segment on the environment and restoring the gulf coast region following the oil spill that is still ongoing. in the meantime, enjoy your static -- and rare saturday. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] . .

>> this is an hour and 50 minutes. [inaudible]

>> i am sorry. i thought it was on. no bill has been reported and i'll have reconsideration of the acceptance of the title involving the paid for it in the house. all those in favor of reconsideration, say aye. it is being reconsidered. the center is going to make a motion and then we will debate -- i wanted to knowledge that hard time will be satisfied. >> it will be open for debate at. >> thank you, mr. chairman, and let me thank all of our fellow conferees and those of gathered together. i appreciated very much to reopen the conference for the consideration of a new proposal

on the pay bofor provision from the bill. there was a reaction to that proposal. i thought it made sense and would work but adding that opinion does not guarantee you will build up the necessary support to succeed with legislation. we have tried to come up with alternative ideas that would reduce those concerns to meet the obligations under this bill. you may recall that we had in the senate version of the bill a fund of some $50 billion. the house have a larger provision which would of left the legislation in the black, and i don't know what the impact was on the house version of the bill, but the colleagues felt that that was sitting out there looking like a bailout fund. senator shelby in i offered an amendment which struck that provision in the bill.

we moved through the senate without a pay for, and house obviously requires pay for. coming back was an alternative, pay for is what brings us here today. what i will propose and what the language specifically is before you, legislative language, let me briefly describe what i will be offering as an alternative for that. i want to remove the financial crisis special assessment to, in 16 01 and 16 02 of the conference report. it effectively ends the target program by prohibiting any new programs are initiatives, reducing the total amount to

authority to 475 billion, what has already been authorized. and it prohibits payments from being recycled into new obligation. the legislation calls for that after june 25 and so that there no doubt to concerns about new obligations under that program. . secondly, it strengthens the fdic insurance fund, amending title 3. it would increase the statutory minimum target for the fdic loss insurance fund from 1.5% to 1.35% for estimated insured deposits. the fdic would have an additional four years until the year 2020 to meet a higher minimum targets. in setting the assessment necessary to raise the minimum

target from 1.5% to 1.35%, the fbi's i shall -- the fdic sell- off offset this on depository institutions that have less than $10 million in assets. banks with under $2 billion in assets will not pay for this increase. the last time the conference met, we adopted an offset by proposing a financial crisis assessment. we've heard from another -- a number of our colleagues about concerned with that provision. and so we have proposed a strike that. -- we have proposed to strike it. as i said, one ends the t.a.r.p. program, and the other would strengthen the deposit insurance under the fdic. to make the point here about the fdic, i will ask that a letter

dated june 29 from the chairperson of the fdic said to myself, the congress, and chairman frank, senator shelby, and senator bacchus, reads as follows -- thank you for our interests in increasingthis ratio. federal deposit insurance promotes confidence by providing a place for consumer funds would provide much-needed stability throughout the crisis. insured deposits provide banks with a stable and cost- effective source of funds for their communities. it is funded by the insured banking industry. a key measure of the strength of the insurance fund is the reserve ratio which is the amount to of the percentage of the industry's estimated insured deposit. , law requires us to maintain the ratio at least 1.15%.

one of the lessons learned it at a minimum reserve ratio of 1.15% is insufficient in times of stress. one of my first priorities when as soon the chairman of the fdic in june 2006 was to begin building our reserve. regrettably there was insufficient time before the crisis hit. indeed we started this crisis with a ratio of 1.22% ratio. in 2008, as bank failures increased, the fund balance and reserve ratio dropped precipitously. the reserve ratio became negative in the third quarter of 2009, and was -0.39%. we've collected assessments and are projected to collect another $80 billion to reserve -- to the reserve fund.

we believe it is clear that as the economy strengthens and the banking system heels, the reserve ratio neds to be increased. in fact, our board has acted for regulation to target their reserve ratio at 1.25% and further to 1.35% it needed to allowed to maintain relatively steady premiums throughout the economic cycle. thereby reducing the totality of the system. let me know if you have any question. signed, sheila bear. -- she loved -- sheila bair. these additional resources, along with the ending of the t.a.r.p. program, which will be warmly received given the strong suggestion that we had an

amendment that was adapted them -- unanimously, offered by michael bennett of colorado, that offered ending the t.a.r.p. program. it was over a longer period of time. we of our expressed our views on that in one degree or another. the date of determination is there. that is the proposal to my senate colleagues that we will like to send to our colleagues in the other body for an alternative pay for provision which i hope would be warmly received as a better idea. whether you like all of the bill or not, it is a better alternative than the one i debt -- adopted in the wee hours of friday morning when we began this conference. now turn to senator shelby. >> it seems to me that chairman dodd is proposing a budget gimmick to get a better score

from the cbo over a limited period of time. deposit insurance, if it is centrally -- if it is surely insurance -- as we saw on the recent crisis, the deposit insurance fund can rapidly depleted any need replenishment. he can quickly become a drain on bonds as opposed to a source of funds. if we can create government resources by raising this, arguably we could drive it up further and pay for any number of federal programs. i believe that we need answers from the congressional budget office concerning the assumptions used in scoring this legislation. for example, look at the year by year cbo assumption about how blaze of the orderly liquidation of party sonde -- authority. it shows it in 2012 followed by

variations. up and down in the years that followed. for example, estimated allies -- outlays go down to $1.8 billion in 2018, and then go back to $2.3 billion in 2019. how does cbo determined that there will be fewer orderly liquidation in 2018 than in the year prior or the year after? where did these numbers come from? we should all ask this. what are the assumptions? we should add that. i do not believe we have adequate information about these budgetary numbers. this bill has become, i believe, all about politics and budgetary smoke and members, and not about sound a relic -- not sound taxpayer protection. i would urge us to vote against this legislation. >> our intention -- and i say

this in advance -- to limit our gathering again to this one area in the pay for section and not to open up the entire bill for other considerations, but i realize that we're in a conference and others may be able to do so, and i want to give my colleagues a chance to respond to this and what ever i did have. >> before making comments, a question. you have some kind of analysis or summary they could show us just how it is that this proposal before us, ending the t.a.r.p. and increasing deposit insurance premium, reduce the shortfall? >> i would be happy to. this is charles. but i can have charles come in and he can go through it. the target closure -- the pay

for -- the t.a.r.p. closure and others. take this microphone. >> the cdo estimates that the effect of these two provisions combined with the fully offset would actually result in a net reduction in the deficit. ending t.a.r.p. is estimated to be somewhere around $11 billion, and results in a savings of 5.7 billion. on top of that, the existing provision in the conference report that makes permanent the increase to $250,000 that is in effect of about $8.7 billion, i believe. the cbo signed off on a combination of this language as police offsetting the cost of the bill. >> can i ask another question?

weren't all t.a.r.p. funds supposed to be returned to the treasury for deficit reduction? >> that is what happened with this. it is just ending the program. >> and then -- will we will get into that in a minute. with regard to increasing insurance premiums, again, are not the deposits -- the premium is intended to be used for deposit insurance and not for other congressional outlays? >> the pay fors that the house requires is providing this kind of offset. >> and then we could pay for a lot of other spending if we increased deposit insurance. >> their smaller institutions

under $10 billion that are not burdened by this. are there other comments from our colleagues? yes, senator judd gregg. >> mr. chairman, i had been chairman of the budget member and ranking member of the budget committee. and in my experience, having seen as many tricks, and games, smokes, mirror, misdirection, shell activities, this ranks right up there at the top of alleged for pure deception relative to treating the american taxpayer in an inappropriate way and significantly increasing our deficit and our debt. a lot is pretty clear. the law said -- i know this because i wrote it -- volos says that the t.a.r.p. funds will go to reduce the deficit and the dead.

as they are paid back. why did we to say that? you are there and congressman frank were there. we recognize that we were doing something extraordinary. our people are going have to pay that back, the american people, but we expected and demanded in that bill that the banks pay the money back. we also decided, we should not spend it but use it to pay down the debt which which -- which we encourage and we owed to the chinese or who ever loaned it to us. it was not right to go out and borrow that much money and then have it be spent. what was right was to pay down the debt which had been created to address this crisis. that is what we did. and the money that has come back

so far in has been used to pay down the debt. unfortunately all the money has not come back yet. the money from the auto industry or edgy has not come back -- a i g has not come back. some money has come back and we had made interest, and it is gone to reduce the death just a loss says. now you come along with this created gamesmanship, and your -- you are taking a savings from terminating t.a.r.p., which the cbo scores at $11 billion, and that number is honest, you are spending it. you're not using it to reduce the debt are the deficit, you are spending and in this bill. what an affront that is to the american people who we gave our word that we would use that money to reduce the debt.

let me read the language of the bill. protecting the interest of the taxpayers by maximizing overall return and minimizing impact on the national debt. the money paid back shall be paid into the general fund of the treasury to reduce the public debt. now we're going to use a little bit of patience which share by claiming that the money has not yet been spent on t.a.r.p., which was obligated solely for the purpose of being spent on t.a.r.p., and now can suddenly be spent for some of these programs. if that doesn't go against the intention and purpose and the integrity of the law that we passed earlier, i do not know what does. and the american taxpayer should be affronted by this little bit of a slide in hand -- sleight of

hand. even the president should be, because the president said on the floor of the senate -- if american taxpayers are financing this solution, then they have to be treated like investors and they should get every penny of their tax dollars back once the economy recovers. the last part is important. it is been the most misunderstood and clearly communicate and part of this plan. this is not a plan to hand over seven under billion dollars of taxpayer money to a few banks. if this is managed correctly, and that is an important yet, will get most or all of this money back and possibly even turn a profit on the government's investment. and every penny of that will go directly back to the american taxpayer. it will be used to pay down the deficit and the dead. that is what the president said. that was his understanding of this bill. that was my understanding of

this bill. now with the american people's understanding of the bill. but now we have a new understanding of this bill. $17 billion going here. let's spend it on some other program. and then we have this fdic gamesmanship. i mean, what a piece of misreading, misdirection, financial management this is. you're going to raise the fdic the and then score them and spend them under this bill? when those fees are supposed to be being used for the purpose of taking care of the banking system and making it safer and sounder? how do you do that? how'd you spend the money twice? disbanded in this bill, and when a bank goes under and new hampshire or connecticut, and the people who have their entire life savings in that bank

expects the fdic to come in and protect them to the extent of $450,000, you just get the money on this bill. how do you do that courthouse you spend the money twice, mr. chairman? it is impossible to spend the money twice unless you are in the united states congress and you ignored the rules of financial budgeting. if we did this in a private sector, we would all be in jail. this is fraud and the american taxpayer, that is clear and simple. that is all i'm going said. and this is a responsible way to address this issue? i guess that is why we are 13 trillion dollars worth of debt and we're doubling in five years in tripling in the next 10 years. this is not responsible. this is profligate and not even honest. it is misleading, saying one thing and doing exactly the

opposite, spending money twice, by allied it -- violating a law that we wrote -- not all little sense of a law, no beer you can get the attorney general to say, on obligated funds were never listed in the language of what goes back to pay down the debt. it did the money that comes in. well, you can get an attorney to parse the words that way, but everyone understood, beginning with the president down to that person on main street to pay the bill on the interest on the nose that the chinese told, that we want to pay down the debt. that should be our goal. and this not only does not do it, it does the opposite -- it spends the money. i find this to be unconscionable, inappropriate, and clearly misleading, to be kind. i have an amendment at the proper time. we have to do this the right way and not use t.a.r.p. funds and

claim that we're then reducing the debt when we are actually spending the money and violate the law, and i use fdic funds and spend them twice. and i suggest that we use the stimulus funds which actually are available to u.s. and could be spent on this initiative and would be an honest and fair offset. and i will make a proposal at the appropriate time, mr. chairman. senator reid. >> just quickly, i notice some disquiet by my colleague. i think it's because this bill represents one of the first major initiatives that we have taken in the area of financial regulation that is actually paid for. over the course of the last several years, particularly in 2000, many initiatives were not

paid for, tax cuts, part d medicare, two wars -- so paying for something comes as something of a shock to the people here. if i understand the previous position that we're now positioning, it calls for tax and financial institutions that ultimately would go door to -- cote toward deficit reduction, but -- but that is being rejected because colleagues consider that to be an inappropriate balanced budget. the tax proposed initially represents a fraction of the bonuses that are handed out by financial firms. and the rationale that by taxing these firms will deprive them of the capital to invest in the economy, the same logic applies to those bonuses. when those bonuses go too well

rewarded, compensated individuals, that would impact on business loans, etc. i find it hard to understand why we are rejecting the initial proposal, and this proposal does what had not been done enough over the last 10 years, it actually pays for, under the cbo scoring, the official scoring, a major initiative. the final point i will make is that all of this discussion about takeover rigid -- paygo, if nothing changes, the winner is wall street. derivatives will be unregulated. responsible capital requirements will be set aside. and the winner will be wall street, not main street or the american people. i would have preferred the first proposal but i think this proposal pays for it and does so

in a way that is recognized by the congressional budget office as appropriate because of the paygo rules. >> there is a strong emotional response we have people who fundamentally disagree with this legislation and opposed all idea of the kind of reforms. that is a legitimate debate. their ideological differences, and i think everyone of us at one. another, if we could write the bill alone, we would probably write a different bill. but we write it in a collegial fashion here taking into consideration various interests and concerns of our constituencies with a goal in mind -- to come up with a solution that avoided the kind of collapse.

we did so in a way that was painful to people. i absolutely agree with the observation that had been made i think the country would be in much deeper and dire straits that we could fund as a nation. but clearly the idea, after all of this in the effort to come together to try and address those concerns so that we do not find ourselves once a within back where we were in the fall of 2008 with nothing had been change whatsoever and all the vulnerability, what is our response to the american people and ask have you done anything about rating agencies? streamlining the regulatory process? what have you done to see to it that we're going to have the kind of response out of the federal reserve, to see to it we have the oversight to identify crises before it they metastasizing into situations that put our entire financial system at risk? there are long list of things in this bill but i think strengthen

our economy and make the economic structures of our nation reflect the 21st century ppin which we reside in live, ad it shares the responsibility of moving forward. so coming up with a pay for in all of this is not easy. but nonetheless we bear that obligation to do so. and by reducing the obligation from $700 billion initially down to $475 billion, ending that program which many have talked about, i thought would have been more warmly received. and by relying on what is needed to replenish the fdic, what is the alternative? to borrow from the treasury? we don't have the resources to keep financial institutions operating from a friday to monday? i don't see is that -- see that as an attractive alternative. by getting this course that we need to to accommodate the budgetary concerns seems to me

the wise way to proceed on this. that does not satisfy those who are opposed to the bill. i understand -- i am not one to solve that problem by coming up with an alternative pay for that made me more acceptable to colleagues who have to vote for or against this legislation. that is the reason for it. trying to come up with an answer that makes sense to people. people still want to invest and i'll be glad to entertain those ideas but we do need to move on this as well. senator corporatker. >> i have been relatively mild mannered for this conference and i tried offer amendments for the good of the people. i have to tell you, mr. chairman, the comment you just made is one of the most disingenuous comments i've heard made during this conference. there are some here that are

ideologically opposed to reform -- that is absolutely not true. and you find yourself wrapped around the axle right now. >> they are ideologically opposed to this answer of our reform. >> that is not what she said. you haveea group of people over here who worked hard to come up with a bill that makes sense, and you are wrapped around the axle right now trying to solve this problem because you have only enough votes to pass it, because you have tried to press the envelope, create a bill that is more partisan than necessary when you knew you could have had a bill that had 80 votes and loss people on the right and left to do so. when you say that there are people in this room that have -- are just fundamentally opposed to financial reform, that is absolutely disingenuous. i want to say to the gentleman from rhode island, wall street is going to be fine.

for years to put on mr. rate that this is about wall street? come on. wall street is up. they are loving it. they've got people to work with regulators. they're going to be fine. is the community banks around this country that are going to be heard. many banks do not have teams of compliance officers to deal with the thousands of pages of regulations they are going to be dealing with. i have been pretty mild mannered but that is absolutely, categorically untrue. and senator bennett, i wonder if he is aware that you were taking $10 billion of the legislation to spend some place else, and some of the republicans -- were you ever created a class act of pay for it. we have created a long-term insurance policy that we knew was never going to be funded and we use that money to pay for a

bill, and that is the same thing we're doing with his fdic fund. mr. chairman, i have deep respect for the way they view from -- you and its chairman from house i have conducted this conference and i appreciate you having a conference that was a real debate. but to say that there are people here that are fundamentally opposed to reform is categorically untrue. mr. chairman, i have to tell you what we are opposed to -- what we have done in this bill to not address the core issues, but haven't overreach in so many areas that was unnecessary on behalf of a political agenda that has nothing to do, in many cases, with financial reform. >> i thank you for your comments on the bill. >>: default on his comments because, just to make it clear as we discussed in this proposed change the problem has come up with the bill if that it spends

more money. the provision that were adopted last thursday night and in the late hours of the night to address that were not acceptable to many of the many -- many of the other members of the house -- the senate as they lifted the increase in expenditures. so we are back at the table to try to deal with it. what is the proposal that we have? i have to agree that it is smoke and mirrors in the budget at the extreme. first, we're taking t.a.r.p. bonds that were promised to the taxpayer that they would be utilized for the purpose of the t.a.r.p. program and then repaid to reduce the deficit. in response to my question, were they not to be used to reduce the deficit? yes, they are going to be used. after this bill has increase the deficit and they will be used to partially repaid the increase in the deficit that this bill has

generated. that is not what we tell the american people. we did not say that we will use these t.a.r.p. funds to reduce spending that we will do in the future. we said we would use them to reduce the deficit when they come in, not offset other federal pending. that is exactly what is being done with these t.a.r.p. funds. they are being used offset new spending and that is exactly in violation of what we promised. with regard to the deposit insurance fund, simply increasing the premiums in the deposit insurance fund will increase the fund available for the deposit insurance program. and those funds are intended in my mind to be treated like a trust fund. we're helping to build up a deposit insurance fund that has of pacific purpose in law, to help protect against deposit failures when banks fail. and to provide insurance for those who find those banks that

failed. and yet we have a budget role here, and now we use that word politely, that apparently allows us to spend money in other programs if we increase the amount of money in the deposit insurance program. that kind of gimmick could have been used -- if congress and on the board today -- cannula mao -- imagine the amount of federal spending that congress would have tried to get away with, just increasing the money in the federal deposit insurance fund, and an offsetting it? that is what we're doing with this bill. we need to deal with this properly. the chairman asked is, what is the alternative? the alternative is to offset the spending by cutting spending somewhere else in the budget. bed at $3.80 -- $3.8 trillions in the budget, we should be able to find it if we propose brit --

if we propose to increase in this bill by another $19 billion. >> any other comments? center greg -- senator gregg comedy 11th amendment? the clerk will report the amendment. . i do -- i do believe -- the line >> i am sorry i am having a hard time understanding. >> i could not hear you. i am sorry.

>> it has been a fascinating experience. thursday night was most interesting. the chairman has been extraordinarily fair in soliciting our thoughts. early on, we had some good working groups going on. on our side of the aisle, it is not opposition to financial regulatory reform. that is not what this issue before us today is. are genuine desire to accomplish or form is almost irrelevant to this issue before us. the issue before us today is whether we as a congress are going to continue on this path of saying one thing to the american people about fiscal discipline and then doing the

exact opposite. we are saying that we are going to pay for $19 billion in this bill. we are going to meet the rules of the house. it does not apply to the senate. yet, at the exact same time, the proposal being brought forward double counts and double spend money and then spends the money that is specifically earmarked to reduce the debt. we're going to pay for this, but we're really not going to pay for it. that is what we are saying to the american people. we are going to use the fdic account to offset other spending. erican people to be used for the debts or new spending.

that is a lot of money. it is a fair amount of money for new hampshire. but we do this for tens of billions of dollars almost on a weekly basis around here three months ago, there was a pay-go bill passed in the senate and in the house. since that bill passed, we have either passed to put in the pipeline two hundred billion dollars in spending that violated the pay-go rules, the purposes of pay-go, and added to the deficits and the debt. now this is going to be added on top of that. so it should not be done this way. independent of whether you believe in this bill or not, you should agree that when we say we will pay for it, of the taxpayer

can look get it and say, yes, that is a pay-for. real dollars should be spent to pay for this. this is why i am offering this amendment. let's not do this tarp language. let's not do this fdic language. while you're at it, let's confirm the fact that, when we terminate tarp, that the money from the terminated card funds will go to debt reduction. this fall -- some of this will be spent in 2019. we can do it. we can find those dollars. let's terminate tarp and put the money to rent -- put the money

to debt. >> senator shelby and then senator saxby. >> i support the brady amendment. it makes sense. but everybody here in the house and senate knows that senator greg has deep interest. he is the top republican and is a member of the appropriations committee and the banking committee. when he is talking like this, i think he is making a lot of sense. i would urge my colleagues to support his amendment. >> i always think he makes sense, by the way. >> mr. chairman, thank you. i am not a member of the banking committee. i have not engaged on the number of these issues that involves

exclusively banking amendments, but this is so egregious. you cannot sit here and let this happen. this is tarp money. it is money that was a poster is a legos to solve the crisis by buying the toxic assets that later got utilize to help the banks. at the end of the day, a lot of the reasons that we voted for the bill is primarily because that money, when it was paid back, was going to reduce the deficit. that money was not supposed to be spent in any other area but we are trying to do now. secondly, i e-mail one of my community bankers say. this is what is fixing to happen to you and give me your reaction. fdic rates are going from 1.5% to 1.35% 06 to read the e-mail

that i got back. but it would be censored by c- span. the fact is that, if you're a depositor, he will be extremely upset when you find out about this. the general public is still mad as hell because the majority party used the student loan program to help fund the health care bill. people all across america, particular people who have money as they put in banks and they know it will be safe and secure because fdic insures it should and will be mad as hell when they find out that money that is being spent to ensure their deposits is now going to fund a financial bill that frankly does not solve the problem of the issues that caused the financial collapse. i think senator gregg has a

better solution. if we have a solution at all, i think it is a good amendment and it ought to be supported. >> let me respond briefly. first of all, under the proposal here, i do know if my friend from georges bank -- from of this does not make an increase at all. most banks -- in fact, the icy ba is calling around is strong support of what we are suggesting here. the smaller banks that are struggling and any other assessments on them would be imposing hardships on them. the reaction is to be in strong support of them. there are choices.

ending the tarp program, i did not think it would be met with such strong feelings. the alternative idea actually helps replenish the fund. the idea of cutting stimulus -- i know people do not like the stimulus package, but the bridges, highways, roads, and jobs at a time when you have stayed in lehigh and employment and tried to get the economy -- when you have extraordinarily high unemployment and you're trying to get the economy going, to have these institutions contribute to this and solve the program and ending the top program is one thing or do we still provide a stimulus package? i think we ought to keep the

stimulus package moving right and keep people working and get the economy moving right and ask those who have the resources who can afford to pay for this and ending the terps program would be the better choice to make. >> chairman, may ask the question? >> you just said twice that he will end of the tarp find and use the money to reduce the %+bt. that is now with this proposal does. it does the opposite. it ends the terps fund and then uses that money to offset new spending. hal -- what is the logic for that statement? >> it prevents tarp money from being spent. if truncates the program immediately. it cannot be used for any other purpose other than for the funds

that it is already obligated. >> if you take my language in this amendment, it does end of the tarp program and uses the money to reduce the debt. it does not spend it. your proposal spends the money that is an address by the termination of tar. .- termination of tarpo if you take my language, that $11 million would reduce the debt. >> over 10 years, there is a $3.2 billion savings according to cbo. >> mr. chairman? >> i would just like to weigh in

here. as i understand what the response was, it is clear what you are talking about. this bill increases the deficit by $19 billion. it is that the visit that the terrapins are being used to reduce. -- is that deficit that the top funds are being used to reduce. >> let's not forget. we have been ex-anti-fund. at the request of my republican friends and colleagues, that was stripped out. that would have given us their resourced to pay for this bill and the leading us in the black.

at the request of my colleagues to strip that out, i find myself in a catch-22 situation. no matter what alternative we come up with to pay for these things, it is just unacceptable. i worked with great friends closely on this. but no matter what the answer we come up with, except one that will stimulate the economy and put our people back to work again, this is the only way we can do this. we need to vote on this. >> mr. chairman, how to speak in support of the great amendment. i cannot imagine, after as much work that all of you have put into this, you want to end by having headlines in the paper to mark saying that you used accounting chicana read to pass the bill. that is what this is. senator gregg has an amendment that actually pays for it and

does it in a real way that americans can understand. i hope you will support the brady amendment. it will solve the problem that you are in. i supported very strongly. >> the words to carry do not help the debate. but there choices to mediate here. -- trish is to be made here. -- but there are choices to be made here. working americans are struggling. i think teachers we're making here is the better choice. >> -- i think the choice we are making here is the better choice. >> ago with the tart language was created under section 204, it says that recission of any

amount provided in this action will not be counted for budget enforcement. the means we will be violating the law by doing this, in my opinion. you may find yourself with a legal issue on top of it. i wanted to make sure the record was clear on that. thank you. >> the members are entitled to their opinion as well. call the roll. >> mr. chairman. >> no pi. >> mr. schumer. >> know, by proxy. >> ms. lincoln. >> no, by proxy. >> mr. harkin.

>> no, by proxy. >> mr. shelby. >> aye. >> mr. corker. >> aye. >> mr. chambliss. >> aye. the amendment does not pass. >> any transaction for the indians would be exempt from the requirement. even if the transaction is not due to be cleared because one of the end user is one of the counterparties, the dealer counterpart will be subject to this transaction which means that a dealer counterparty will

pass this margin and pass the cost to the end user. under the senate bill provision, there would have been assured that there was no margin requirement on the transaction. this is an unintended consequence that have been in the last minute. i have an amendment that would cure this problem and ensure that no end user that is declared as exempt is going to have to post margins, which was the original intention. it was in the senate bill originally. that is what will intended to have take place. there was no discussion about that provision in the amendment that was ultimately accepted in

the conference. i would ask consideration to my amendment and vote in support that air of -- in support thereof. >> we spent a lot of time today talking about this. there is a difference of opinion on how clear the languages. is that theation language is clear. we want to keep coming back to this conference and strictly focus on the pay-for provisions. it was up to the members to decide to clarify what we believe it is the language. >> procedurally, a move to reconsider the title that included the pay-for. someone, when it comes back to us, they might move it.

we closed all of those titles and voted to do it. at this point, the house is not procedurally hoping to upset any other title unless some items for consideration. procedurally, we're not prepared to accept offers on any other subject. >> i understand that. i think we can help clarify this language in the approach replace. >> i appreciate your offer to help clarify, but the problem is that it colloquy the on the floor is not going to help us if the language is clearly in the other direction. the financial community is up in arms over this and rightfully so. i happen to think that end-users will be required to post margins by this.

that is not what we intended. it is one of those additional provisions and one of those expenses that will have the results of driving more and more of these transactions offshore, putting them back in the dark. that is not with any of us want to do. but it is a provision that will have serious consequences to end users that we thought we were treating properly. >> we think the clarifying language in a colloquy will help alleviate the concerns for the people that have raised this issue. we examined the issue today. had i felt that there was legitimacy to what was being offered here, we would deal with it. i might also suggest that, by pursuing a vote on the matter, it will not help the legislative history.

is it to memmers themselves if they want to pursue it, but i strongly recommended that you led us view this in a way that we all agreed on. it was not designed to subject literally all of these individual organizations to have to meet margin requirements. i recommend we go back route rather than voting on this matter. >> mr. chairman, you have had the votes all along anyway. i am sure i know what the outcome will be. what i would prefer is that you expected and that the house make an exception and take this one clarify provision. if we do not, it will have consequences that neither the house nor the senate intended to have in the most complex and controversial and discussed and debated provision for a title that we have in this entire

bill. while i appreciate would chairman frank said, i do not think he wants this to happen. i do not think that he wants to end users who are exempt to post marginal requirements. that was never discussed. i think it is a huge mistake for us to do otherwise, mr. chairman. >> do you want to pursue the vote? >> yes. i would like a recorded vote. >> the clerk will call the roll. >> mr. chairman. >> no. >> mr. johnson. >> now, by proxy. >> mystery. >> no. >> mr. schumer. >> know, by proxy. >> ms. lincoln. >> know by proxy. -- no, by proxy. wait, a little bit. senator lincoln, aye by proxy.

>> mr. harkin. no, by proxy. >> mr. shelby. >> aye. >> mr. kriegel. crapo.mr. krieg >> aye. >> to the measure is a tie and it is defeated. >> we are going to recess for five minutes.

>> come to order. let me say, we previously had a tie vote and the proposal failed on the tie vote. as an expressive to senator chambliss, i believe -- as i expressed to senator chambliss, i think it is important to note that, while i do not necessarily disagree with what he is suggesting, and the fundamental reason for the vote on this side

has less to do with the substance of the thing. the fact of the matter is we have a limitation on the parameters of this conference to be focused on the title that deals for the pay-for provisions the deal. i'm prepared to work with my colleague from georgia on this to see if a call away solves the problem or something else may be done. >> in the procedural footing, i hope to not vote to reconsider. this is a very large bill. i think we would need a technical corrections bill that goes beyond just minor things people on the house side also mentioned that same point. i am committed to a bill subsequent to this on things that are not terribly controversial. once we have the whole bill done, there becomes a mutual

interest in clarification. if we were to reopen the conference now on other issues, i believe the thing will unravel. >> i appreciate the comments of both chairmen. the only thing i would say is that this is not a technical amendment. this is a very substantive amendment that will be very expensive on the end user. >> it is a correction when he is saying is that it was not intended -- is a correction. he says it is not what was intended. i believee will need to do some corrections. something of this magnitude, there will havv to be a second and smaller bill better not as controversial within the context

of the overall bill. >> this title of the bill does not go into effect for one year. so there will be the time as well to examine whether or not the call we will solve the problem. i am not arguing whether or not my colleague is right. helps have a window that' to solve this problem. >> was the least to try to fix it. -- let's at lst try to fix it. >> not to the senate proposal. the clerk will call the roll. >> mr. chairman. >> aye. >> mr. reed. >> aye.

>> mr. leahy. >> aye, by proxy. >> mr. slby. >> no. >> mr. crapo. >> no. >> mr. chambliss. >> know. >> the voters are 7-5. the measure is passed. we can send this proposal to the house. all those in favor? the ayes have it. >> under consideration, this is no (a recognize the gentleman from alabama. >> thank you, chairman. we convened at 5:00 p.m.

we got a three-minute notice as to the amendment. but it was not three minutes before the meeting. it was three minutes after the meeting started. here is the mail. i would like to put --ere is the e-mail. i would like to put it in the record. attached is a copy of the amendment that will be addressed at today's meeting. this bill is like giving due consideration. we have all been out on the highway and seen an 18-wheeler that is swerving from lane to la and we said that that driver has not had any sleep in 16 hours are 20 hours. last thursday and friday, we had a lot of weaving.

part of the weaving is going to cost american companies as much as an estimate of $1 trillion on the derivative pursuit. now we hear that we will declare martial law. what is -- one is the last time you heard that? the health care bill. . you said that we are going to

pay for the cost of this legislation and return it to the taxpayers at the same time. how do you pay for a program like this, legislation, and suddenly that money disappears. it is spent. then it magically reappear is? -- reappears? i have got to see that. i have never seen such a thing is that i am a life. when we get through debating this amendment, i plan to cut make a motion to reopen title 7. we have -- i mean, reopened 13 and 16. i will discuss the a

when i do we will discuss what the association is saying about job creation. we think that jobs are an important issue. to work, keeping people at work -- that is what the amendment was about. i've got several questions. i thought maybe that a staffer was going to answer its . senator gregg asked your stafford to explain thesavings to the country. what he said was te provisions have savings. this saves us this much and this one that much. he never told us how tt was going to happen. i've got all kinds of questions. one o the things we keep earing is that you are going to

shut down tarp and all the programs. a are you going to end the capital purchase program? can someone give me a yes or no on that? we actually added more money to tat -- or my friends on the majority did. how do you shut down a program three months early and that suddenly saves you 10 or $15 billion? were you anticipating you would send me lose $15 billion somehow? i think these are ll legitimate questions. i would like chairman frank -- they say is the smartest guy in the congress -- i would like to answer this question. >> your time has expired.%-

is thee further debate? the gentleman from california. >> thank you. let me make this point that this bill in large respect will restrict accs to credit. that is one of our key concerns about this provision. adding another assessment is going to further compounds that credit contraction that we are experiencing. for al of us 11 talking to small businesses in our district and worried about capital and how they will handle their payroll, right now to do that seems like a real step in the wrong direction. with respect to tarp, i opposed it when it was iitially constructed because of the strong suspicion that it would

turn into an endless gravy train. what we ha leaed through this process is just that. on the democrat side, we had an initiative for a while that the majority was pushing for tarp funds to go into the affordable housing fund. once you start down this road, it is very hard to get it back on the correct path. we incur all of these costs for what? in one sense, we continue to expose taxpayers by codifying the too big to fail set this up for certain select wall street firms and offering public money as the initial source of funding to bail out the creditors that are funding the ferns.

-- firms. those who are making the argument and telling us that this is a pay for where the same folks there are saying the tarp fun to be repaid to the american tax payers. i think we know that that is not going to happen. lastly, if you think about it, this is a yearly -- eerily reminiscent of the gimmicks used to pass a health care bill. congress did thousand out to appear to pay for a massive new entitlement program for . we are going down the road again. to what end? the bill creates the illusion of safety. by compounding moral hazards with this virtually unlimited government guarantee, we are going to further undermine

market discipline. we have a situation with 45% of he financial system as a government back stock. it'll go up to 60%. it'll be $25 trillion. that is a majority of our capital market that will have the government standing behind it. there is a lot of moral hazard standing behind that. it was to allow bankruptcy to speak it up -- to beef it up. i think it would have been a ch preferable course. thank you. i yield back. >> thank you very much. thank you to chairman frank and is chairman dodd.

i respect the hard work and hours that you have put in to try to come up with reform in this financial-services community and regulatory reform. i know the you have worked hard. i respect that the and the i am like senator reid. i really did like the proposal that would tax the too big to fail banks. i am sorry that we gave in to the senate. that proposal got lost. we ended up with something that supposedly was targeted to reducing the deficit 25 years from now or something. i am concerned about the foreclosure crisis in this

country. i know it may not be a popular thing to talk about. there are those that would have you believe that every body fat is in a foreclosure crisis. verybody that is in the foreclosure crisis is at the fault of the homeowner. there are those that would have you believe that theywere just irresponsible. what they cannot explain is why all of this happen at a cerain time and why so many homeowners all across the country all of a sudden ended up with mortgages created byxotic products by the banks and why it happened, when it happened, and how it happened. i do n believe that the homeowners or those that were trying to realize the aerican

dream or simply trying to gain the system. what i believe is that major financial institutions in this country created these liar loans and every other kind of exotic product you can think of in order to get people to sign on the dotted line with mortgages they did not understand and they were certainly not able to pay. i believe that the taxpayers of this country and those homeowners and those people trying to realize the american dream need some protection by the public policy makers that they sent to washington, d.c. to look out for the interests of all people. i do not think the hamp program is working. 2.8 million homeowners received

a foreclosure notice in 2009. there were three and 23,000 foreclosure filings in may 2010. that is identical to may 2009. the response continues to lag well behind the pace of the crisis. as a may 2010, three and defeat thousand homeowners have received final five-year loan modifications. that is a small fraction of the borrowers that are 60 plus days delinquent. the congressional oversight panel said that only 275,000 households will ultimately avoid foreclosure because avoidhamp.

"it seems clear that treasury programs will not reach the overwhelming majority of homeowners in trouble. the goal is for hamp to offer lower modifications but only some of the offers will result in temporary modifications. only some of the modifications will converge to final five-year status. some will eventually fall behind on their payments and face foreclosure." the goal since malta the magnitude of the problem. that is by the congressional oversight panel. it says no authority under this act may be used to anchor -- >> your time has expired. further debate?

>> i do not suppose it rises to the level of the louisiana purchase. for us to have received roughly annan hour of not lesnotice to this conference, to receive an amendment that is a court to this entire legislation and to receive that three minutes after the conference was reconvenes on an amendment that i believe is fundamentally deceptive to the american people is fundamentally unfair. i do not understand how money can be used for two different purposes.

i heard the distinguished chairman of the banking committee say that cbo has said this or that. the good people at cbo scores would you put before them. if you do not put before them thathey will use the same bottom money for two different purposes, that may alter the score. i've heard cbo discuss. i would hope they will make it available. i have heard the chairman of the senate banking committee say to leave it to tarp. harvester not have been extended in the first place the the -- tarp should not have been exteded in the first place. i am not really sure they terminated tarp.

we have existence programs. it says you cannot add new programs. with respect to bringing the ceiling down, there is a language that says as long as the secretary of treasury can get the fed chairman to agreed with them then he can go back up and raise the cap. i do not see this as teinated the tarp program. the american people were told this money would be reduced to reduce the deficit that has increased almost tenfold in the last two years that has contributed to the largest debt in the historr of america. now we are at a tipping point of having our debt the 90% of our economy. greece is at 113%. here are taking money away frm the tarp fund. i do not unerstand it.

telling the american people that somehow by magic it will be used for two purposes. these are funds that are stressed. on the one hand, we say we will add to the deposit insurance fund and that needs to be done. on the other hand, i have a lease in earlier cbo letter that said the legislation is going to increase to expanding by $26.9 billion. we are going to use the rvenue -- this congress is obviously the payfor is the last thing anything thinks about. we are going to use it as a pay-for. isn't it interesting that your writing into this bill and office that supposedly is going to root out abuses, unfair and

deceptive financial practices. that is exactly what this is. the very first thing that this ought to do is outlawed this funding practice. it is unfair. if this abusive. it is deceptive. this is the kind of accounting that could make bernie madoff blush. here we are, members of the united states senate and house, getting ready to pass this. i do not understnd it. it is still a tax. it is a tax that all of them is going to lead to less credit, more expensive credit, and fewer jobs. that is what this is all about. i yield back. >> the gentlewoman from illinois.

>> thank you. i am concerned about the fact that we did not receive this amendment. i can remember when tarp first came up in the house and the first bill really did not have the accountability. most of us voted against it. then there is this crisis if the market was going to change, it could never recover. i can remember calling senator gregg about that in saying, how are we going to ensure that there is accountability? what he said was, the money that comes from park definitely goes to the debt. i think they've always counted on that. many of us voted for that reason. now we are going to say that the

tarp moneis going to pay for this the bill. what worries me is that pete peterson's foundation was at a hearing that we had on the oversight subcommittee professor -- subcommittee. he said we are at a tipping point only have one or two years to solvee this problem of our debt. the first thing we have to do is to tell the truth to the american people. they have been lied to. we are ging to have to do the sacrifices including the congress. and stop spending. ths is just changing. it is still going to be $19 billion that is going to

increase our debt at the least. then i think we have this problem with the end user which we want it to. it concerns me that one we know that something is wrong, we should do the right thing. i do not think that people want to vote yes for a bill that is not the way it should be. we just cannot do that type of thing. >> new jersey. >> thank you. someone said the we should rename the bill to the franc/dodd bill.

he does combine that to the broad bill to describe exactly what we have here now. it amazes me that in this day and age when our constituents are going through such hard times and americans are asking for congress to do the right thing, smaller government, less spending -- here we end this bil process with doing the exact opposite, a larger government, increased spending, and increased taxes. there is no other way. there are no other alternatives. we are in a catch-22. really? there is no other way? when it the novel if just once from the viktor departed the we would hear the idea of cutting spending, reducing spending, finding some offset so place.

in my state in new jersey, we did just that we did it in a bipartisan manner would take governor chris christie reaching across the aisle taking a budget -- a $30 billion budget, reduce spending by $1 billion, 9.2% over time. bipartisan without any tax increases like we are talking about here. can you do that here? the answer from the majority party from both the house in the senate is "no." really? he cannot do any better? the center brings out the letter from thefdic with their comments with regard to the raising of the money.

it mak the -- if you read the letter, what the chair woman was saying -- she points out if they were already planning on doing that. maybe not of to 1.35 -- the reserve ratio already needed to be increased 1.25. the idea that they are supporting this idea going to 1.35 as a funding mechanism for this is not really here in this letter. they are just saying that in light of the crisis they recognize the need t strengthen the fdic. and do nothing the letter really support the argument that you are making. if it did come to think about

it. where is this fbi -- fdic funing going to go? a depository institution, is it not? we afford to start taxing banks to fund non depository institutions. that would raise a lot of concern from our local bankers. they are not suggesting that. finally, to the point in the cbo scoring, while i did appreciate and found it interesting with the senate staffers were sort of running the show as opposed to the centers themselves. we find ourselves in the same boat today. we have been here for almost an hour and 45 minutes. i am still looking for that proverbial cbo scoring to document exactly where the money

is coming from. we still do not have it. [unintelligible] it is troublesome. to go back to where i began, the program name for this bill is probably the frank/dodd bill. to the constituents, can you do anything better than th? my question is the same. really? can we do better than what you are suggesting? i yield back. >> the gentlewoman from west virginia. >> thank you. i like to make two brief points. one is on the fdic increase in the percentage. having found this out, i do not think any of us have had a hard to argue their community banks and other banks in our region to find out what this really means to them. i do not think we a had time to

have a reaction because they have not had time to share this information chairman dodd says he has existed out community banks. tim million dollars and below will not be affected. over the life of the bill, maybe you are not affected by it today but you could be if you grow and do the right thing. you are going to be affected by its not maybe two or three years or fr years. more financial institutions if we are not disincentive growth are going to fall into this. more of our community bankers and local job producers are going to be falling into this. i have had several meetings in my office where community bankers have come to my office over the last three years and are straining under the fdic

fees. it has been a difficult thing in difficult times bu. i do question that in the overall effect. the most frustrating thing for me here, i handle most of that on my side, we did not look closely enough at bat. i do not think will be in this position right now if we said selectively that led not say the government will have the right way to solve the problems. let's create and in hand something that we know works for companies in cities and airlines. it provides the of gentility that we see in all appeared to be of gentility that we see in all other forms of financial

distress from i think we would have alleviated the problem that you are having, to come up with $19 billion. we could hav reached the barrier between the government soution and the court solution. think it would have probably brought us to a better solution and one that i think would alleviate any obligation the taxpayers may have now or in the future. thank you. >> i think the chairman. i have tried to tay mostly out to the financial part of this. i like to make a small point feder. i know much has been said about

the various programs that will not go away as a result of "ending tarp." if you read looking for a pay for, a program that has been through hearing after hearing in my committee and a bipartisan basis is a program that has had a very hard time continuing to be important. it was important. it stabilized the market. we have been told that virtually the 30% requirement that is in there. we hadan opportunity to look at the program and trim some of the money. you can trimeter about taking tarp funds.

-- trim it without taking tarp funds. there was 25 billion. because so little has been used by the program, you have a substantial amount of money tha would be a legitimate paid for with previously appropriated funds into thousand eight that are access. i have a quandary question. it is something that has been approved by the house that seemed very appropriate. you did the right thing. he said, why do not you work with us and see if we can come to their meetings on the details? we work in a good faith. yours works in good faith.

we reached a of th26 pages of mt that was acceptable to house republicans and democrats and to the administration. it went to the senate. when asked the senate, what happened? cannot even find someone who said they did not like it. >> i have searched every document. i have not found any mandate that i would be able to understand what happens in the senate. if you find well, i like to see it. we did get an agreement.

>> nothing knowledgeable of the intricacies intricaciespay for predict industries -- not being knowledgeabll of all the intricacies of pay for, i think you for helping me. he might talk with your members to seek it an actual fund and money cod be used which would still leave a substantial amount of money in the ham programp. >> i now recognize myself for five minutes. we have not done nearly enough to alleviate the stress of average citizens that are caused

by these problems. we put in $4 billion to try to deal with it. the tarp has not ended by this program. tere is no commitment to it. there is some fun of and get the money left from the i intend to more. people unemployed on not to be treated like this. maybe some of the money ought to be reprogrammed for something else. i am sorry it is not made available. we did that get until just before we did it. i preferred what we did in the bill. i preferred asking goldman sachs and jpmorgan chase and all

those others, hedge fund above to million dollars -- $10 million, to be assessed to the tune of $19 billion over two- years from t. people that have not shown any concern in context of what they make was some help drive up atm fees. no, not entirely this man a consumer bureau. i much preferred what we do. i do not underand why some members on the republican side who are not here preferred what we are being talked about through levying a financial hit on these institutions.

the fdic does hit the larger institutions and not because there is the cut on the $10 billion, but because on the initiative working with sheila bair where mandated the fdic to pu a risk weighting in to the assessment. there is less risk of the institutions that will pay more. if it passes, small institutions will be advantaged. i regret that we are making the change. these areimportant considerations to get enough votes to pass this bill. we have to do this. it is a very important bill. there is regulation of derivatives. mary schapiro of the sec is a

strong supporter. mayor shapiro, elizabeth warren, and sheila bair are all strong supporters of this bill. here are a number of important things in the bill. a fiduciary requirement for municipal advisers said the we do not give the kind of problems we have all seen. all those are very important. i am prepared to make compromises. for those who worry about is getting too far, the conservative party prime minister of canada said over the weekend that with this bil america takes the lead in financial regulation and the rest of the world will follow. on the tarp, what it says is this. i prefer the original way. what cbo is saying is this,

money repaid to the tarp goes into the treasury and to have made a profit on the big part. what the cbo is saying is that if you spend the remaing on allocated tarp money, you will lose some of it. you will nt get it all back. cbo is a wondrous institution. i am often puzzled by it. i do know that my colleagues have a tendency to love it when it agrees with us and not so much when it does not. that is where we are. given the importance of this bill, i hope that we can defend it. the question is now concurring with the senate madeir. we concur the senate

[unintelligible] [roll call vote] aye, present, aye, aye by proxy, aye, aye by rpoxy, aye. aye. no. no. no. no. no.

no. no. no. no. >> on their local, there are nine ayes, 6 nayes and one pree sent. >> i have a motion to reopen title 7. >> the determine from alabama moves to reopen title 7. >> i think i voted that the end- users of derivatives would that have to raise additional capital. >> that means no. >> i will put the motion anhere. it is not debatable to reopen in

a detective. -- another title. i believe the buiness -- >> i was going to speak on the amendment. >> it is not debatable. the title is not opened. the conference is now concluded. we've read vote -- we will revote. coracle calthe roll. indeed the clerk will call the roll. aye. aye. aye. aye. aye by proxy. [laughter]

aye. aye. aye. aye. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye. aye by proxy. aye by proxy.

no. no. no. no. no. no. no by proxy. no by proxy. no by proxy. no. no by proxy. >> may we have the result? >> ayes are 20, nayes 11. >> i think the house chairman

and the work to adopt this. aye. aye by proxy. aye by proxy. aye by proxy. aye by proxy. ye by proxy. no by proxy. no. no. no. no. seven ayes, 5 naye.] the report is pased.

] i tink you for the hospitality once again. i say that this c [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> members of the house approved the financial regulation bill. the measure would create a consumer protection bureau at the federal reserve, giving

regulators new powers to liquidate financial firms and create a council of financial regulators to monitor risk. here's a look at the floor debate prior to the vote. this is about one hour. thank you, mr. chairman -- mr. speaker, and i thank you, mr. chairman. i rise in opposition to this job killing continuation of a bailout bill. chairman frank said he was astonished in the interpretation that this is a bailout bill. what is even more astonishing is that this is the same chairman who was earlier last session leading the effort in our last bailout bill. and here he is once again leading the effort on this bill for a continuation of bailout. what is even more astonishing than that is here he stands as the author of the bill with a 2,300 pages in front of him holding up and actually reading the bill and he fails to see that this underlying piece of legislation continues to bail out creditors at the expense of

u.s. taxpayers. just as we saw with the situation with a.i.g., where the creditors on wall street and the creditors over in china and such areas as that were bailed out at 100%, we see the same things possibly going forward here in this legislation as well. perhaps that explains to us all why wall street is applauding this bill, because they know that they will continue to see the bailouts that they saw in the past. so it is astonishing to see that we are repeating history. i know the chairman will say, this is not going to happen because there's the opportunity for receivership. but the chairman well knows, as he looks into the bill, that that receivership isn't for a day or two, it's for a year or three or four or five years that we can continue to see american taxpayers putting out their money to bail out these failed risky institutions. you know, it seems that every term that the democrats who wrote this bill chose to endow the same failed regulators who

failed to perceive the last crisis with more and more power. at every single turn the democrats chose more government bureaucracy and more government outreach into our economy. and at every turn the democrats drew up policies that will kill jobs and restrict credit. now, on the one hand this isn't surprising. we've seen this all before, when you think about it, whether it was in the area of cap and trade or in health care proposals, among others we saw before it. on the other hand, it is disappointing that -- mr. bachus: i yield the gentleman an extra minute and a half. the speaker pro tempore: the gentleman is recognized for a minute and a half.%% mr. garrett: on the other hand it is disappointing when you consider the history of the failed efforts in the area of health care or the failed efforts on the other side in the area of tax -- cap and tax, that they haven't learned by now from their past mistakes. think about it for a moment. think about what we hear when we go back to our districts, that the american people are delivering a strong message to those of us in washington willing to listen. a message saying that they do

not want a continuation, mr. chairman, of the failed policies that you brought to the floor in the past with your bailouts of wall street. the american people say that they do not want to be on the hooks for the hundreds of billions of dollars to bail out institutions on wall street that made bad risks. they want it to end now and they want it ended today. they want less failed government into their lives and into their economy. they don't want institutions that can look at every single transition, -- -- transaction, whether at the a.t.m., that the government can now look down into those transactions, whether it's opening up a credit card county someplace -- account someplace. any transaction whatsoever that you or i make or anyone listening to this speech tonight will be able to make, because bureaucrats, unelected, unaccountable bureaucrats will be able to look into those transactions. they want less failed government overreach into their lives, they want less intrusions into the

economy. what you ask them do they want? they simply want more opportunities, opportunities to work and provide for their families and they want those opportunities without pushing our country into%% greater debt. unfortunately this bill fails on all accounts. the speaker pro tempore: the gentleman's time has expired. the gentleman from massachusetts. mr. frank: i yield to my colleague, mr. peterson, for one minute. the speaker pro tempore: the gentleman is recognized for one minute. mr. peterson: thank you, mr. speaker. i'd like to read into the record a letter mr. frank and i received. as the letter makes clear, we have given the regulators no authority to impose margin requirements on anyone who is not a swap dealer or a major swap participant. while the regulators do have authority over the dealer or m.s.p. side of the transactions, we expect the level of margin required would be minimal. in keeping with the greater capital that such dealers and m.s.p.'s will be required to

hold, that margin will be important. however, to ensure that a dealer or a major stock participant will be capable of meeting their obligations to the end users, i would -- we need to make sure that they have that backing. i would also note that a few if any end users will be major swap participants as we have included positions held for hedging or mitigating commercial risk from being considered as a substantial position under the definition. i would ask chairman frank whether he concurs with my view on the bill. mr. frank: i yield the gentleman 15 more seconds. the gentleman is absolutely right. we do different than others. the end requirements are not on end users, they're only on major swap participants. they're permissive, they're not mandatory and they're going to be done with an appropriate touch. mr. peterson: thank you. i yield back.

the speaker pro tempore: the gentleman from alabama. mr. bachus: at this time i yield four minutes to the gentleman from california, a senior member of the committee, mr. royce. the speaker pro tempore: the gentleman is recognized for four minutes. mr. royce: thank you, mr. speaker. yesterday a small community banker in ohio by the name of sara walz wrote a letter. she wrote about what she believed will be the end of community banking as we know it. and she notes in her words, going forward we will no longer be able to evaluate loan applications based solely on the credit worthiness of the borrower, we will be making regulation compliance decisions instead of credit decisions. and this gets to the heart of the issue with the underlying legislation that we're discussing. despite the fact that every

failed financial firm had some type of federal regulator overseeing it, the answer put forward in this bill is to give broad, largely undefined powers to those regulators and not, by the way, in the interest of safety and soundness. if the objective was safety and soundness the amendment that i put forward to allow the safety and soundness regulator to overrule the consumer financial protection bureau in cases where safety and soundness was at stake, that would have been upheld. no, that's not the goal here. and to get back to the point that sara makes, her observation is that instead of focusing on providing credit and providing the best possible service to the customers in these small towns that need that credit, these

institutions will focus instead their efforts on appeasing the federal government and on appeasing the allies in congress. why should that give us concern? it should worry us because whether it is striving toward another goal, such as congress' interest in subsidizing housing, and by the way, that's what happened during the housing crisis, or whether it's funneling cash into friendly community activist organizations like acorn, the fact is the closer big government gets to business, the more likely these favors will become the rule instead of the exception. what i don't like about this is the political pull that comes out of it. what i don't like about it is the market discipline being replaced. and i think on a massive scale this bill replaces objectivity

with subjectivity. it replaces the market discipline on main street with political pull in washington. and regulators will now decide which firms will be treated differently and therefore move through the resolution process and which firms should be left to the bankruptcy courts. why would we care about that when terms of these big ferms -- firms having this ability now to have this alternative means of resolution? well, once in the resolution process, the government will have the authority to provide a 100% bailout to which every creditor it favors, while imposing severe losses on other institutions who bought the capacity same bonds. should we be concerned about abuse in this respect? i think so. because this type of bureaucracy -- bureaucratic discretion has led to abuse in the past. we have already seen that abuse in the obama administration's

handling of the chrysler bankruptcy last year. secured creditors, typically entitled to first priority payment under the absolute priority rule, ended up receiving less than the union allies of the administration who held junior creditor claims. the fact that the regulatory reform -- the speaker pro tempore: the gentleman's time has expired. mr. royce: ensures this kind of favoritism in the future. the speaker pro tempore: the gentleman from massachusetts. mr. frank: mr. speaker, i yield one minute to the majority leader. the speaker pro tempore: the gentleman is recognized. mr. hoyer: i thank the chairman for yielding and i congratulate the chairman for the extraordinary work he's done. i thank mr. bachus, too, who i think is one of the really responsible leaders in the minority in terms of issues of substance and where there are differences, there are honest

differences. mr. speaker, i come to the floor and when i do i hear the portions of the debate, sometimes not all the debate. i want to make an observation, though, i listened to the gentleman from new jersey and he remarked on what the people were saying. and i think that frankly his remarks reflected the difference in the perspective between both parties. indeed, that perspective has been reflected in my three decades here, under mr. reagan and others who have served as president. and lastly with mr. bush. mr. obama's immediate predecessor. and that perspective was, if the regulator would simply get out of the way things would be fine. mr. royce indicates that the market will take care of things.

the market will discipline itself, he said. phil graham said that with respect to the derivatives. unfortunately i voted for that bill that mr. graham was for, i made a mistake. the market did not discipline itself. in fact, the market took extraordinarily irresponsible steps. what i hear, i tell my friend from new jersey, the people saying is, don't let the big guys trample on us. don't let the big guys put us at great risk. don't let the big guys make decisions that they take the risk and we take the loss. that's what i hear the people saying. and that's what i think this deal is designed to respond to. this week mr. boehner compared reforming wall street to killing

an ant with a nuclear weapon. that may sound colorful, but this is the greatest economic crisis that any of us, and i'm looking around this floor, have experienced in our lifetimes. and i'm closer to experiencing the last one than any of you on the floor. but none of us, even at my stage, were alive during the great depressiin. so this is the first time that we have experienced such a deep, deep recession. but i will tell you, the eight million americans whose jobs it took away, i think it was -- think -- away think it was a mighty big ant that squashed them and their families or the millions more who saw their savings devastated or the families in every one of our districts who lost their homes. they think to themselves, mr.

boehner, that was a mighty big ant that came my way. and not more than half of the nation's working adults who report that they have been pushed by the recession into, and i quote, unemployment, pay cuts, reduced hours at work or part time jobs, closed quote, according to a research center survey reported in today's washington "post." -- "washington post." some of you may think it was an ant that walked through here, but some of you think it was a pretty big elephant that squashed them and hurt them. i don't mean an elephant in the symbol of your party, respected animal with a long memory, but we have differences. the differences are, as i've said before, that you perceive regulation as harmful.

my analogy is, if you take the referee off the football field i guarantee the split ends are going to leave early and try to get the advantage and the little guys on the field are going to get trampled on by the big guys because there's no referee to say, time out, you broke the rules. this bill is about putting the referee back on the field and saying, obey the rules, do not trample on the little people, don't take risks that you will expect them to pay for. more than half, mr. speaker, more than half of today's families have been affected. there is no way to overstate what happened to them and there's no mistaking the cause of the crisis, the wall street culture of reckless gambling and a culture of regulatory neglect that the last administration wants to return -- perpetuated

and some want to return to. i simply think that would be a mistake. i talk to people in new jersey, they don't like what's happened, they don't it to happen again and this is an effort to make sure that's the case. never again. never again should wall street greed bring such suffering to our country, and never again should washington stand by as that greed manifest itself as irresponsible risk taking a few share of the profits but main street bears the brunt of wall street's bets. now, let me say that i voted for that bill. i was wrong. the gramm bill. we didn't need to regulate derivatives. by the way, there were a number of democrats, leaders who said that as well. and mr. greenspan said it as well. he admitted he made a mistake and he was distressed by that

mistake. now, we can't erase that crisis. but we can work to rebuild what we lost as democrats have done every time we've been supporting job creation, to the recovery act, for cash for clunkers, for tax relief for small businesses. frankly been instructed by the minority party and the other body who have made a high stakes political bet on recovery's failure. that would be a shame. we can also, just as any responsible family would, ensure ourselves against a repeat crisis and protect america's jobs from another devastating collapse. the wall street reform and consumer protection act, which mr. frank and mr. dodd have led to this point, means an end to the irresponsible practices of the big banks. and i want to say the community banks, which i think mr. royce referred to, he's absolutely right.

they were not the problem. none of our community banks. they could frankly care if people paid them back. they were careful people to whom they gave loans could pay them back. it was those that securitized them that put them in these big fancy documents that didn't care if they could pay them back because for the most part they made money on the transaction. not on the long-term responsibility of the debtor. i'm happy that among our financial institutions there are responsible actors who appreciate effective oversight and understand that it stimulates investment, enterprise, entrepreneurship and job creation. why? because people can trust the system, because they know the referees on the field are watching and they know the game can be honest. no one can create an economy without risk nor should it, but this bill will bring accountability on wall street and washington, protect and empower consumers, prevent

future meltdowns and not bail out wall street excess. i want to say to my friend that mentioned we bailed out wall street. how quickly you forget that it was president bush and secretary paulson and ben bernanke, appointed by chair of the federal reserve, that asked for that bill and that your leadership, for the most part, supported and urged its adoption. so with all due respect, it was president bush's administration that asked for that bailout, not democrats. what democrats did when they said there was a crisis acted in a bipartisan way to respond to that crisis. very frankly, i think we precluded a depression. americans have an obligation of responsible borrowing. but financial companies also have a responsibility to make

loans fair and transparent. by creating a consumer federal protection bureau we can ensure that both sides live up to that bargain. the consumer financial protection bureau will strengthen and modernize the oversight of wall street by putting the functions of seven different agencies in one accountable place. it seems to me that that would appeal to people who want not so many proliferation of various agencies crossing one another. in addition, corporations like a.i.g. and lehman brothers, will no longer be able to do the kind of gambles that risk our entire economy and indeed the world. institutions that placed the biggest economic bets will be required to keep capital on hand to meet their obligations should those bills fail and not expect the taxpayers to do that. this bill also reduces the conflicts of interest that allow credit rating agencies to wrongfully declare such institutions in good health long after they were dangerously overloaded. of course, the regulators

weren't watching. there was a philosophy, of course, that regulation got in the way. and it prudently regulates the inherently dangerous derivatives that warren buffett, and i call, weapons of financial mass destruction for the ability to bring down entire economies when bets go bad. should a major firm still find itself on the verge of collapse, this bill insulates the rest of the economy and keeps taxpayers off the hook, off the hook for any future bailouts. mr. speaker, tremendous amount of irresponsibility in washington and on wall street went into the crisis from which we are still struggling to recover. that crisis, of course, started in december, 2007. actually, it started long before that, as i said, in the late 1990's. middle-class family -- families who worked hard paid the price. but there is a consequence even

worse -- a failure to learn. we know what greed and neglect can do. no one can plead ignorance. let's show, mr. speaker, ladies and gentlemen of this house, that we learned something from the crisis. let's keep it were happening again. -- let's keep it from happening again. let me tell you what i hear from my constituents. they want us to stop it from happening again. they're angry about it. i'm angry abouu it. i'm sure that, ladies and gentlemen on both sides of the aisle, are angry about it. this is an opportunity to ensure to the extent we possibly can that this tragedy to so many millions of families does not happen again. i yield back. i yield to my friend. >> would the gentleman agree to this statement, though, that neither i nor i think anyone on our side of the aisle take the view that we want no

regulation, that we are proposing no reform, that actually we have presented a proposal for reform that we indeed need reform, differing in approach, an approach, we believe, would end the perpetual bailout? mr. garrett: do you think that we have a different perspective? mr. hoyer: will the gentleman yield? mr. garrett: yes. mr. hoyer: i do believe we come from a different place and i do believe that it's accurate to say that all of the republican presidents who have served during the time that i have served have advanced the proposition that regulation at the federal level was overburdensome and that it ought to be reduced. certainly we ought to reduce regulation that is nearly effective and is instrusive to the -- intrusive to the growth of this economy.

mr. frank: will the gentleman yield? mr. hoyer: i will in just a second. but with respect to that, i think what we saw during the last decade was an excessive commitment, as mr. greenspan pointed out, to the proposition , as mr. royce stated, just get out of the way, they will discipline themselves. frankly, the split end that leaves two seconds early because the referee is out on the field is not a bad person. he's trying to get an advantage. that's the difference, i think, between our perspectives. i understand that difference of perspective so i agree with you that we do have a difference of perspective. i believe this strikes the right balance, and i yield to the gentleman. mr. frank: i say to the gentleman from new jersey, i only judge what i see. when the house voted on this bill last december, the minority had certain amendments made in order under the rule. in the end they had the motion

to recommit over which they had complete editorial control. the motion to recommit on this version of this bill that passed the house last december from the minority said no regulation, no reform of regulation. it has one provision. it said kill everything in the bill. it didn't say do it differently. it didn't amend it. it didn't change it. it said do not change anything. do not reform anything except end tarp. which thanks to the senate, we are now doing in this bill. i can only judge what i see. when the gentleman says that, when the minority had a chance to offer their own version of this they offered a version that said no reform, no change, no new regulation, leave the status quo. mr. hoyer: reclaiming my time -- and i will -- i will now leave the stage after a little more than my minute. i will say to my friend that the chairman's answer i think reflects my view of our different perspectives.

and i will now yield back the balance of my time. the speaker pro tempore: the gentleman from alabama. mr. bachus: thank you, mr. speaker. at this time i yield five minutes to the gentleman from texas, mr. hensarling, the ranking member of the financial institutions subcommittee. the speaker pro tempore: the gentleman is recognized. mr. hensarling: i thank the gentleman for yielding. mr. speaker, the cause of our financial crisis is really federal policy, that strong arm that facilitated financial institutions to lend money to people to buy homes who couldn't afford to keep them. and people who decided to buy more home than they can afford and now expect their neighbors who didn't to bail them out. mr. speaker, it's not a matter of deregulation. it was a matter of dumb

regulation and there was no dumber regulation than that which created the government-sponsored he want prizes and gave them an affordable housing mission and ended up buying the lion's share of troubled mortgages or ensuring -- insuring the troubled mortgages in the system. again, it wasn't deregulation, it was dumb regulation, and all this bill before us does is perpetuate the same dumb regulation that got us into this financial pickle in the first place. the bill before us doesn't go to the root cause. it leaves the government-sponsored enterprises, which represent among other things the mother of all taxpayer bailouts, $147 billion and counting, $1 trillion of taxpayer money, is left in place. an amendment the republicans offered to reform the

government-sponsored enterprises, those are somehow out of order. amendments that would put them in budget. no, they are somehow out of order. an amendment, there is one little study in it. one study dedicated to the government-sponsored end prices, an amendment that would have ensured the -- enterprises, an amendment that would have ensured to figure out how to make the taxpayer whole, the democrats voted that down. they are even scared of a study that would try to make the taxpayer whole. instead, what does this bill do, mr. speaker? it creates a permanent bailout authority. there is only one reason to have a bailout authority and that's for bailouts. if you want more taxpayer -funded bailouts, this is the bill for you. to paraphrase from a line from the old kevin costner movie "field of dreams," if you build it they will come.

the federal government can purchase the assets of failing firms. the federal government can guarantee the obligations of failing firms. the federal government can take a security interest in the assets of failing firms. this is a bailout authority. the big will get bigger, the small will get smaller, the taxpayer will get poorer. now, i know our friends on the other side of the aisle continue to say, well, the taxpayers' not going to have to pay anything. well, the congressional budget office, headed by a democrat, they seem to differ. i have a copy of their analysis of the bill dated june 28, quote, c.b.o. estimates that enacting the legislation would increase direct spending by $26.9 billion, most of that amount would result from provisions that would establish a program for resolving certain financial firms that are insolvent or in danger of becoming insolvent. now, they're notorious for low balling these estimates but

even they say -- even they say that ultimately taxpayers will be called upon for this bailout authority. mr. speaker, the best way to end taxpayer bailouts of failing firms is to end taxpayer bailouts of failing firms. and that's really the choice presented before us. bankruptcy versus bailouts for failed wall street firms. the democrats obviously choose bailouts. think about it, mr. speaker, this is a job killer, pure and simple, a job killer. it creates a new federal institution to ban and ration consumer credit. the chamber of commerce representing main street, not wall street, estimates this will increase consumer interest 1.6% and fewer than 4.6% jobs will be created. community bankers in my district , if i have no compliance cost and the federal government is going to limit the kind of

customized credits i can offer, we will had lose jobs in anderson county, texas. i hear from constituents, small businessmen, i own a small business, i'm a distributor for a promotional product that comes from suppliers all over the country. without easy, reliable access to that credit, i'm out of business. mr. speaker, again, this is a job killer. i haven't even talked about the huge new expansion of government within this bill. the speaker pro tempore: the gentleman's time has expired. mr. hensarling: this should be defeated. i yield back. the speaker pro tempore: the gentleman from massachusetts. mr. frank: i yield one minute to the speaker of the house. the speaker pro tempore: the gentlelady is recognized. pell pell thank you very much, mr. speaker. i thank -- nancy pelosi thank you very much mr. speaker are, mr. speaker -- the speaker: thank you very much, mr. speaker. as i listen to the debate here, i can't help but remember, and i have a vivid memory of it, a

couple of years ago, almost two years ago, september 18, a thursday afternoon, we were gathered in our office and had just seen a week and a half proceeding, a week and a half to two weeks preceding that day, some unusual events that related to lehman brothers, merrill lynch and then a.i.g. and the said bailout of a.i.g. i called the secretary of the treasury and said, we're meeting here in my office and wondered if we could be helpful in any way in terms of public policy because what we seemed to see coming out from the executive branch is chaos, different responses to different challenges that were not adding up to us, could you, mr. secretary, come to the congress tomorrow and give us a report on

what is happening? the secretary said, and i said, could you be here at 9:00 tomorrow morning to tell us what is happening to the markets? secretary said, secretary paulson said, madam speaker, tomorrow morning will be too late. tomorrow morning will be too late. why, mr. secretary, have you not notified congress? why have you not called us sooner? why would it take a call from me to ask you to report to us, to tell us that tomorrow morning will be too late? without going into his response, which i'm happy to do, but in the interest of time i won't now, i then call the secretary, i mean the chairman of the fed, chairman bernanke, and asked him to join the secretary of the

treasury at my office later that day. the meeting turns into a meeting that was half in senate, democrats and republicans, gathered together to hear from the secretary of the treasury the condition of the markets. the secretary who had told us that we couldn't even wait until the next morning described a very, very grim situation. the chairman of the fed who is an expert on the great depression told us that the situation was so grim that if we did not act immediately there would be no economy by monday. this is thursday night. there would be no economy by monday. how could it be? we, the greatest country in the world, with the strongest economy, and that we needed to

act immediately. the response from the bush administration was a bailout of the banks. and a 24-hour, 48-hour period they produced a bill, $700 billion that they asked the congress to pass to bail out the banks. it was necessary to do. because of the recklessness of the bush administration's economic policy, because of the lack of supervision, discipline and regulation, the recklessness on wall street had taken us to the brink of a financial crisis of such magnitude that the chairman said there wouldn't be an economy by monday. took us into deep recession where 8 1/2 million jobs were

lost, the people lost their jobs , therefore in many cases their health insurance, they lost their pensions, they lost their savings, they had to live off savings and lost their investments for their children's education. because of recklessness on wall street, joblessness was rampant on main street. one of the reasons was there was no credit, it's interesting to hear my colleagues talk about the importance of credit to main street, but not one of them voted for the credit, the small business credit bill that passed in this congress about a week ago. but in any event, joblessness, lack of credit, suppressing the entrepreneurial spirit of the united states of america, because there were some, not all, but some on wall street who decided it was ok to privatize

the game as long as they were making money and nationalize the risk, send the bill to the taxpayer. that's why we are here today, to make sure that never happens again, to say to them that the party is not over, and it's interesting to note that in that message not one republican participated when this bill came to the floor originally. and that was the end of last year. years of allowing wall street to do anything it wanted -- beyond lassy fair, to be overleveraged, no transparency, no accountability, produce the most severe financial crisis and economic downturn since the great depression and the american people paid the price.

again, eight million jobs, nearly $17 trillion in net worth disappeared, a record number of foreclosures ravaged our communities and, again, credit disappeared from small business, small businesses. this also had a tremendous impact on construction in our country because of the lack of loans. today i rise with the clear message that the party is over, no longer again will recklessness on wall street cause joblessness on main street. no longer will the risky behavior of the few threaten the financial stability of our families, our businesses and our economy as a whole. the wall street reform and consumer protection act has been appropriately named for chairman dodd and chairman frank and i thank them for their leadership.

bringing this legislation before the congress and doing so and bringing this legislation before the congress, chairman frank and chairman dodd are making history . for decades to come their names will be identified with the stark reforms to protect the economy of our country and the financial and economic security of the american people. i also want to acknowledge chairman collin peterson who carefully negotiated some of the most contention provisions of this legislation, working with chairwoman lincoln on the senate side. all of the democratic conferees, i thank you for your commitment, for making the strongest bill possible and for always putting america's consumers first. today we will follow the lead of those on the committee and act in historic legislation to bring transparency to our financial

markets, lowering the leverage that got us into this trouble in the first place, brings tough oversight to wall street and brings consumer protections to main street and to the american people. by voting yes, we will pass the toughest set of wall street reforms in generations. this comprehensive and far-reaching legislation injects transparency and accountability as it lowers leverage into the financial system run amok under the republican's -- republicans' reckless economic policies. this legislation makes commonsense reforms that end the era of taxpayer bailouts and too bill to face d financial firms -- too big to fail d financial firms. it establishes a new independent agent solely dedicated to protecting americans from anticonsumer abuse. the bill closes the door on predatory lending and regulates

payday lenders, it includes provisions to allow us to conduct oversight over the fed, establishes tough rules for risky financial practices, enhances oversight for credit rating agencies and reins in egregious c.e.o. bonuses by giving shareholders a say on executive pay. it sheds light on the darkest corners of the derivatives market and is fully paid for and how is it paid for? by shutting down the bush era bailout fund known as the tarp and useing the savings for financial -- using the savings for financial reform. each member of this body faces a choice, we've had these choices before, democrats wanted to rein in health insurance companies, the republicans said no. democrats want to rein in big oil, the republicans said no, democrats want to rein in the

recklessness of some on wall street, the republicans are saying no. each member of this body will have a choice, we can place our bet on the side of those on wall street who have gambled with our savings and lost, or we can stand with main street and the middle class. will we preserve a status quo and if this bill were to fail we would be preserving a status quo that has left our economy in a wretched state? or will we guarantee the american people strong reforms and effective vigilance to prevent another financial crisis? how can we possibly resist the change that must happen? how can we forget that the chairman of the fed said if we do not act we will not have an economy by monday?

four days from when we were having the conversation. how can we let the status quo that created that condition to continue? i urge my colleagues to choose on the side of main street, i urge you to build a future of stability and security for america's families, consumers and small businesses. i urge you to vote aye on the dodd-frank wall street reform and consumer protection act. thank you, mr. speaker. the speaker pro tempore: the gentleman from alabama. mr. bachus: mr. speaker, at this time i have no other speakers and would like to reserve the balance of my time until the gentleman from massachusetts has no further speakers and is prepared to close. thank you, mr. chairman. i surrender -- yield myself such time as i may consume.

the speaker pro tempore: the gentleman is -- the gentleman is recognized. mr. bachus: mr. chairman, i hear two people that i know are leaders of the majority and they each, mr. hoyer and ms. pelosi, and i know they appear to be sincere when they say that never again will the american people be asked to bail out those on wall street who made reckless deals. no longer will the taxpayer be put on the hook. but there's an inconvenient truth here for my democratic

friends and that's the clear wording of the bill. i mean, i think the elementary that before we pass legislation that we read it. and i would not repeat this except my colleagues in the majority continue to say time after time after time that there's no bailout. and there is. there is an a.i.g.-style bailout. now, a.i.g. cannot be saved under this legislation, in fact, we changed -- changed that and we both insisted in a bipartisan way that a.i.g.'s of today will not survive and they will not survive under this bill. a.i.g., under this bill in a bipartisan way, we agreed, they fail. we say we put the a.i.g.'s in bankruptcy and they're resolved that way my democratic colleagues say that a.i.g. will be put -- or an a.i.g.-like

failing company will be put in an fdic supervised resolution authority. mr. frank is correct when he says, wait a minute. wait a minute this only occurs when these firms are being placed in liquidation. they have to -- they're being liquidated. well, now, i agree with him. now, now, is there no bailout of anyone on wall street? well, of course there is. there's a very expensive bailout. the dodd-frank bill promotes in section 204-d 1,-6. go write this down and go and read it. it says the fdic can lend to a failing firm, two, purchase the asset offings a failing firm, three, guarantee the obligations of a failing firm, four, take a security interest in the assets of a failing

firm, five, and/or sell the assets the fdic has acquired from a failing firm. why would you lend a failing firm money sni keep asking that. and the second thing is, where is the bailout fund in this bill? there is no bailout fund in this bill. there's $19 billion that's assessed toward community banks, fdic assessments that are raised about $9 billion. and there's the tarp program that's ended three months sooner than it should be, we're told somehow that because we're not going to start any new programs in that three months, somehow, hocus pocus, saves us about $10 billion and it is hocus pocus because you cannot spend the money on the new programs in this bill and then turn around and suddenly pull out of the hat the same money and give it back to the

taxpayer. it doesn't happen. now, also, speaker pelosi may forget that the -- one of the first signs of trouble was not in september of 2008, but it was in july of 2008 when we suddenly realized fannie and freddie were insolvent and many of our banks, almost all of our banks, had major positions in their shares. why did they have major positions in their shares of fannie and freddie? because the government said if you invest in that, we'll give you a special rating. we'll count it the same as treasuries. and it disappeared overnight. that was in july, not in september. banks took a hit on that. and democrats said at that time, and the bush administration, and the bush administration, we've got -- and secretary paulson, we've got to give $400 billion to fannie and freddie because in

1999, under the clinton administration, you said let's loan to people with poor credit, loan to people without much of a down payment and republicans and democrats both rush to use this into a source of cheap money and it failed. and republicans said, and still say, and say as this bill is on the floor, wait a minute. you're going to reform these companies before you pour taxpayer dollars in them. and every republican in the house voted no, we will not give them taxpayer money until they're reformed and there's a plan to liquidate them. the chairman says we need to liquidate them. what about fannie and freddie? why aren't we liquidating them? and we're not. the biggest bailout we've had is of fannie and freddie who did we bail out? did we bail out the banks that had shares? no we bailed out the chinese

bondholders and sec are retear paulsen said, the chinese may not lend us money. we'll sure need the chinese to lend us money if this bill passes because there's a derivatives section in here, now, we have a letter that mr. peterson -- chairman peterson produced that says, this doesn't affect end users, but it's a letter. the truth is, we were in conference last week when we fought this out. and we voted for an exemption for end users and the democrats voted against one. and we've been told in the past 48 hours, 72 hours, by groups reich the international swap and derivatives association that this bill will cost businesses $1 trillion. $1 trillion. and that's capital and requirements to raise cash and it doesn't matter whether they trade in derivatives or someone does it for them, someone has to post that capital and that goes through and is an expense

for that commercial company. if you take $1 trillion out of the economy suddenly, sure, you are going to have a crisis like this bill anticipates. and this bill says, if there's such a crisis, that -- chairman frank keeps saying a receiver is appointed, a receiver is appointed. that's right. and that receiver after 30 days is authorized to borrow 90% of the fair value of the failing companies. chairman frank that is $8.5 trillion. that money is not in this bill. there's not even $10 billion in this bill for this type of resolution. you have to go to the banks or you have to go to the financial companies. are you going to get it after the fact? if they're failing, uh howe are they going to pay it i want to close with a positive and a way

that the 320 members of this house who took a stand can take a stand in just a few minutes. collin peterson, chairman peterson, said there's no requirements that end users post margins. and we all agree that if they had to, it would be $1 trillion out of these companies and $1 trillion, according to joe biden, will produce 700,000 to 1347b9 million jobs and will %- produce as many as 200,000 jobs a month. so that's the hit to this economy if this does a i ply to end users system of we have a motion to recommit. first it says there's an exemption on end users. now, you have said that there is one, thuff letter from chairman dodd and blanch lincoln saying there is one. that's half of it. you'd vote for that because you're saying it's in there. secondly, there's the federal

audit. and we need, the taxpayers and voters are demanding, and mr. hoyer, transparency at the fed. they're spending trillions of dollars, committing trillions of dollars let's have this audit of the fed. the speaker pro tempore: the gentleman from massachusetts. mr. frank: i yield myself as much time as i may consume. the speaker pro tempore: the gentleman has 7 3/4 minutes. mr. frank: mr. speaker, to begin, i want to address the members who are concerned that the interchange amendments will unduly affect smaller financial institutions. the interchange amendment wasn't part of the bill here. it was put in by a heavy vote in the senate and the conference process means a compromise there is in that amendment, as senator durbin put it in, an exemption for any fee set big the federal reserve for small institutions. they, then, feared they would be discriminated against so we

amended the amendment. with the participation of the senate, obviously. and there were three provisions that protect smaller institutions, community banks, and credit unions. there's an anti-discrimination provision that says merchants and retailers cannot refuse to accept a debit card on the basis of who issued it, and the federal reserve, the instructions of the federal reserve include making that anti-discrimination work. we can guarantee people we will do it. as the amendment passed the senate, it said the small institutions were exempt but they might have suffered discrimination. they are protected in this bill. that's why the small businesses in illinois have endorsed this bill. i want to talk briefly about what's happened with the tarp. we had the last two republican speakers, one hailed the c.b.o. is an unassailable authority, then the other speaker said it's hocus pocus.

it is apparently unassailable hocus pocus, which i don't want to get into at this time. there's two parts of tarp. the bill does say repayments go to debt relief. there have been substantial repayments from the banks, those go to debt relief and aren't affected by the amendment. what the amendment says is there's still tens of billions of dollars of tarp money that could be committed and the amendment we adopted in conference says, no more. they cannot do that. that's where the savings comes system of the savings comes from not allowing additional tarp spending. you know about the republicans with regard to cutting off tarp, they were for it before they were against it. they used to be against it. i prefer what we had in our provision, to assess the goldman sachs, j.p. morgan chase, mr. paulsen's hedge fund, that's the way we wanted to do it, we couldn't get it

through republicans in the senate. first republicans in the senate said don't do it, other republicans then say why did you do it? i'll make a pledge right now, the economy i chair will bring out a bill that has an assessment on the financial institutions above $50 billion so members who miss it will get a chance to show us they care. we'll bring it there and have that come forward. i don't want to talk a little bit about subprime lending and the partial history we get. the fact is, the republican party controlled the house and the senate from 1995 through 2006. during that period they showed remarkable restraint. as eager as they were to destroy subprime lending, as passionate as they were to reform fannie mae and freddie mac they didn't do it. that's a degree of abstinence unparalleled in political history.

they were in charge. whose fault was it? it was my fault. as people said before, people have accused me of being the secret manipulator of tom delay. if that were the case, you wouldn't have cut taxes for rich people, wouldn't have gone to war in iraq and if he was listening to me, he wouldn't have gone on the dance show. i don't take responsibility for mr. delay. the gentleman from california said he tried in 2005. he had an amendment to the bill of mr. oxley. mr. oxley, the republican chairman of the committee, brought up bill. if no democrat had voted either in committee or on the floor of the house on that bill, it would have worked exact -- it would have looked exactly as it looked. it was a majority of republicans. the gentleman from california, mr. royce, wasn't able to persuade a third of his fellow republicans to vote with him. i'm sorry he wasn't able to do better. i'm not an expert in how to get republicans to vote with him. i can't offer him any help.

maybe he can find somebody to teach him how to get better votes among republicans. by the way, i did in 2003 say i didn't see a problem with fannie mae and freddie mac. in 2004, president bush said to fannie mae and freddie mac, i order you, he had the power and used it, he used it to order them to increase subprime lending purchases. he wasn't alone in that. june 22 article of "the wall street journal" quotes a member to have congress in 2005 in a hearing saying work the advent of subprime lending countless families have now had their first opportunity to buy a home or perhaps be given a second chance. fail once, get it again. the american dream should never be limited to the well off or those consumers fortunate enough to have access to prime rate loans. that's the gentleman from texas, mr. hensarling. mr. bush -- president bush wasn't alone in that. then in 2007, the democrat tax power and we passed a bill for

the first time in this house to regulate fannie mae and fred tee p.a.c. secretary paulsen said it didn't go as far as he'd like but it was a good bill. fannie mae and freddie mac were put into conservatorship. they were the first major institutions to be reformed. we also in this house passed a bill to control subprime lending. the gentleman from alabama had been the chairman of the subcommittee with jurisdiction over subprime lending in those republican years and never produced a bill. he said it was our fault because he wrote a letter, myself, mr. miller of north carolina and we didn't tell him we'd vote for im. i wish i could have it back. i wish i knew i was secretely in charge of the republican agenda. i wish i knew they wouldn't do anything unless i said they could but nobody told me. where were they when i needed thome to be more powerful. the republicans never checked with me as to what they were supposed to do. it's 2007, we did pass such a

bill to restrict subprime lending and the wall street journal attacked us. they said it was a sarbanes-oxley for housing. sarbanes-oxley is about as nasty as you can get for "the wall street journal" and here's what they said about subprime lending in 2007. maybe that's what george bush expanded subprime lending. the "wall street journal" said in 2007, complaining about our will, for all the demonizing about 80% of even subprime loans are being paid on time and another 10% only 30 days behind. most new homeowners are low income families who would otherwise not have qualified for a mortgage. in the name of consumer protection, mr. frank's legislation will ensure that far fewer of these will be issued in the future. unfortunately a couple of years too late. we would limit them. i always wanted to do affordable rental housing which that administration opposed.

this bill has the biggest package of increased consume brother texts in the history of america and it doesn't ban products or ration products, it says there has to be fair dealing this bill says if a fiduciary responsibility of people selling products to individual investors for the first time, gives the s.e.c. he won the pulitzer prize for his reporting on tom delay. sunday, we will talk to jeff smith. the financial crisis inquiry commission on wednesday continued its investigation into the 2000 a financial crisis. this hearing focused on the role of derivatives. there was testimony by current

and former executives at aig. this included the first public testimony of joseph cassano. the commission is a bipartisan panel created by congress and is due to report its findings this december. phil angelides serves as chairman. this portion is about one hour and 45 minutes. please raise your right hand. do you solemnly swear under penalty of perjury that the testimony you're about to provide the commission will be the truth, the whole truth, and

nothing but the truth to the best of your knowledge? thank you very much. gentlemen, we thank you for submitting your written testimony, which the commissioners have had a chance to review. we would like to begin today's session by asking that each of you provide a statement of no more than five minutes. there is a device at the table which will signal yellow when there is one minute to go and read when your time is up. we ask you to adhere to that five minutes and that will allow us significant time to ask questions on matters before this panel. it would no further ado, i am going -- i think i am going to start with mr. sullivan. we will go in that order. if you would begin your statement, that would be terrific. >> thank you.

good afternoon. my name is martin sullivan. i was president and chief executive officer of aig from march of 2005 to june of 2008. my career at aig spent almost four decades. i started work at age 17 in the accounts department, which was the u.k.-based subsidiary of aig. i took on increasing responsibility would on the property underwriting side of the business. in 1996, i move to new york and i have lived there ever since. i became chief operating officer and president of a are you -- aiu.

in march to the house and five, i was asked by the board to become ceo of aig. when i assumed this position, at the company was in crisis. we had to advise all interested parties that we would be delaying the filing of the 2004. we undertook an internal review of our books and records. this reduced spent the global units. -- this reduce banned the global units. i was meeting regularly with regulators and working with senior management to strengthen and enhance our overall financial reporting and internal control environment. aig was segmented into four lines of business, life, non- life, financial-services, and investments.

aig conducted interest-rate, currency, equity, commodity, energy, and credit transactions. during most of my tenure, justice cassano was c.i.o. . .

and that senior risk managers approved all strategic decisions. but each business unit then made decisions based on its overall strategy and in lite of all finally, you have asked me we devoted significant time and effort to abliesing and disclosing in detail the companies potential exposure across the board in all of its businesses to the deteriorating u.s. residential housing market. a.i.g. repeatedly revised the corrected estimates as it developed better information. in february of 2008, a.i.g. was advised by its independent auditors that they believed

that material weakness existed in its internal controls and financial reporting and oversight regarding the fair value valuation. sometimes evered to as the mark shortly thereafter, a.i.g. issued a form 8 k describing this issue and revising its evaluation. after issuing its form 8 k, a.i.g. also undertook an assessment of its procedures and instituted managerial changes. throughout my tenure as c.e.o. my goal was to communicate as openly and directly as possible within the organization with investors and with regulators. i appreciate this opportunity to share my views, and i look forward to your questions. thank you very much, indeed. >> thank you very much. mr. lewis. >> chairman, vice chairman, and members of the commission, i am pleased to help in any way i

can in the commission's efforts to learn about a.i.g. and the complex derivative financial exinstruments. i am the chief risk officer of a.i.g. i joined a.i.g. in 1993 as the company's chief credit officers and in 2004 was appointed the company's first chief risk officer by then c.e.o. m.r. greenberg. i established and continue to be responsible for the a.i.g. corporate risk management function known as enterprise risk management. as an insurance company, a.i.g. is in the business of taking on risk. a.i.g.'s basic approach is that responsibility and accountability for the risks assumed by the various a.i.g. business units actually reside within the business units themselves. my role as chief risk officer supported by enterprise risk management is tos a sist the businesses in identifying, evaluating and managing aspects of their risk. i understand the focus of

today's hearing is on complex financial derivatives and in particular on the credit default swaups. so let me get right to that subject. an important aspect of the management of the risk from sale of credit default swaps involved the cdo structure of the assets underlying the swaps themselves. basically, as i believe the commission now very much understands, a cdo consists of a tower of loans with the upper most level known as the super senior level having the first right to the entire tower's cash flow in the event of default and consequent losses bioan agreed pob level. the approach to the management was to structure the cretted default swaps so that they would only be triggered if the underlying losses were severe enough to rise to the highest levels, a risk that they deermed to be unlikely even under severe scenarios. the evaluation was supported

and reporting to its c.e.o. while neither fp c.e.o. or its risk reported to me, i understand it to include quantitative modeling developed by a leading finance manager which assumed features of the worst economic condition that existed at any time since world war ii. this analysis demonstrated to a 99.85% confidence level that the upper level portion ensured by a cred zit default swap would not suffer losses. for years, things worked as the models has predicted. however, in the latter part ofie, the corporate level began to get concerned based on increasingly bank and housing market that was heating up.

they discussed these concerns who responded that fp's own risk analysis was identifying the same concerns and that he had decided it was time to shut down. at that point, commitments were already in place so it was not realistic to terminate the business instantaneously. however, with one exception, fp decided to end its business of new credit default swap sales involving subprime exposure. as to those already on the books the judgment was that they would continue to perform satisfactorily given the safety of the tower structure and the fact that those swaps covered earlier mortgages provided at a time of more conservative lending practices. >> as it turned out, we were wrong about how bad things could get. what ended up happening was so extreme that it was beyond anything we had planned for. the cdo tower structured did provide significant protection to a.i.g. because those investors at the top of the tower were legally protect bid their superior rights to the

tower's cash flow. but the market's apparent anticipation of further cash flow declines combined with an extraordinary erosion of market liquidity generally resulted in a collapse aff fairly values there by triggering collateral costs. ago's liquidity was thus depleted not withstanding that losses to a.i.g. were not occurring and given time the values were expected to come back. as the credit crisis reached its peak, a.i.g.'s ability to maintain declind as credit markets froze, and sp could not make good on all collateral call demands. it was at that point that the federal government stepped in with taxpayer assistance. i would be pleased to answer any questions. >> mr. cass anno. >> chairman, vice chairman, commissioners, my name is jose of cass no, i worked at the

financial products division of a.i.g. for over two decades and was the head of the group since january 2002. i was proud of fp's employees and remain proud of them today. if as a result of this process you are critical of our work, please direct that criticism at me, not them. thank you for having me. i fully appreciate the importance of your mission generally and the importance of the events surrounding the a.i.g. bailout specifically. tonight thank your staff especially for their professional approach and many courtesies during my cooperation with the commission. i know you have read my written submission. i will not repeat it here. although my perspective diverges in important ways from the popular wisdom, i am very willing to answer all your questions about our portfolio

of credit swaps, our risk assessment and monitoring of that portfolio, our decision to exit the subprime business in early 2006, well ahead of many others in the market, our continuing surveillance of that portfolio, the fundamental analysis and contractual rights that formed the basis of our response to collateral calls during my tenure, the anlitic method we used to value the portfolio for accounting losses and issues surrounding our compensation structure generally, my compensation in particular, and the circumstances leading to my retirement. and of course any other question it is commissioners may have. phairman, you said that this commission's work would be tethered to the hard facts. i am grateful for that. i intend to give you my best recollection and candid perspective. i look forward to your questions. >> thank you very much.

we will begin the questioning now. i will begin the questioning. then we will go to vice chairman thomas and then the members of the commission who led this portion of our inquiry. i want to start with some questions first of all on the management of derivatives by the organization. so this is really about both the dristtives business as well as risk management in the company. and i obviously want to start with the perspective that things did not go well. earlier today, one of our witnesses indicated that his view, which i think is shared by many, is that the story of a.i.g.'s management was one of irresponsibility only matched by a lack of accountability. so i want to talk a little bit about the risk management measures, how you view this marketplace. mr. sullivan and mr. casino, on december 5 of 2007, there was an investor conference. and at that time you said that the risks that a.i.g. took in the housing sector was

supported by sound analysis and a risk management structure that allows a.i.g. to put our capital to work in an efficient manner and you went on to say that a.i.g. had a centralized risk management function overseeing -- that oversees the market, credit and operational management of each 06 our businesses and parent company. during that same call, you said that a.i.g. fp performed thorough due diligence on each trade and it was very selective process with rigorous modeling assumptions. i want to ask you a number of questions about risk management in that regard i want to enter into the record a number of documents. it is a document called risk management. there are a number of documents which we received and reviewed both from a.i.g. and from price waterhouse coopers. so the first is that in 2005, the amount of derivatives that you had written triples during that year. mr. sullivan, you told our

staff that you did not know in 2005 that the decision was made and that in fact you had tripled your exposure to credit derivative swaps for asset backed securities. tell me why you were out of that loop. >> thank you, sir. as i mentioned earlier in my opening remarks, obviously during 2005, i was focused on resolving the issues that were facing the corporation at that time. and i won't repeat those for the record. my first knowledge of the cds, superseeding cds portfolio was sometime during 2007. >> so you had a book of $78 bling of exposure by 2007 and you didn't become aware of it until then? >> what i was receiving was red lar reports from not only mr. casino on his business but also mr. lewis and mr. mcgan on

a.i.g. fp's business in its totality including the credit default wap portfolio. but to the best of my knowledge i did not recognize thht portfolio and there were no questions raised that would have given me concern. >> in the management report sent up to the parent company would the information have been there that the exposure had gone up all the way up to $78 billion in 2007? that would have been in the manage rmt reports floating up. correct? >> yes, sir. >> secondly, i want to talk about these, that these were rpttive multisector cd onches. but we looked at a sample of some of these, and in 2004, 2005, 2006, there were almost overwhelmingly residential backed and very substantially subprime. for example, in the survey we did of some of these cdos that you issued protection on, 84%

were backed by rmbs residential mortgages. in 2005, 89% in 2006. and an example of why you indicated to stop writing on subprime instruments in january of 2006, for example, you backed instrument called rfc 3 where that cdo was 93% subprime and 7% hell ok. my question for you, mr. cass no, is you said you did thorough due diligence. were you aware of the quality of the mortgages? did you do direct analysis of the loan data? were you confident that you had a full understanding of the nature of what you were backing? >> i'm sorry. i went fast. 93% subprime, 7% home equity loans. >> chairman, the numbers that

you are referencing in these portfolios i don't know specifically. and i am happy to look at them again and go through that with you. but i think to answer your question more directly, we never diluted our underwriting standards at any point in time. we had rigorous standards, standards set by the a.i.g. credit risk management that we then employed in underwriting these transactions. now, it is important to recognize i think that we did take the difficult decision to exist the business in 2005. but the other thing that i think substantiates our underwriting criteria in these transactions is that many of these multisector cdos that we did now reside in lane 3 which is the special purpose vehicle

that the government set up after the bailout of a.i.g. and to date, that vehicle is performing. i think i am sure the commission know it is statistics, the federal government lent that vehicle $24 billion. to date that vehicle has repaid $8 billion through the performance of these transactions. and as far as i can see from where i sit, when i look at the portfolio residing in maiden lane 3, i don't think any of the transactions have pierced the attachment levels that we had set in our underwriting standards. >> but my understanding on that point is that while the real economic losses today may be relatively small, that the projections for the economic losses may be upwards of 25%, perhaps up to 50% on those. do you think that's just not accurate? >> what we look to is the performance and to see if

anything has been pierced. now, we have gone through obviously one of the worst financial crisis since if anybody's lifetime. and as we move through this, and we come through the financial crisis, the only thing i can do is look at the existing portfolio and say that it is performing through this crisis and it is meeting the standards that we set. and i think our reviews were rigorous. i think the portfolios are withstanding the test of time in extremely difficult circumstances. >> all right. let me move on because it really does bring me to the next issue. which is that here is something that i want to particularly query mr. sullivan about and that's the following. the contracts that were written with counter parties like goldman provided for collateral calls on the, if there were declines on market value.

now, i will stipulate at the fwee going that of course mr. casino was aware of this mr. frost was aware of this, mr. sun at a.i.g. financial products were aware of it. my understanding is there would be collateral calls on a.i.g. if their economic losses real losses on the loan, if there are downgrades to a.i.g., and thirdly, if there were declines in market value of these securities, which in fact did happen. and i'm going to talk to you at a little more length about how this happened in particularly in respect to goldman sachs in a minute. but mr. sullivan, turf ask you because here is a major commitment by your company in which you are backing ultimately 78 billion of protection. and what was imparted to us in our interviews is that you said to the best of your knowledge, you are not aware of these mark to market terms in these crabts until the summer of 2007, which makes sense since you weren't aware of the contracts until 2007. your cfo said that he wasn't

aware that the contracts required posting of collateral if the fair value declined. he first became aware in the third quarter of 2007. mr. lewis, you're the chief risk officer and you told our staff that you didn't know about this until goldman made its first margin call on july 27, 2007, and when asked if the provisions caused constrnation within the company, in our interview you said, i would say that's an understatement. the financial services division cfo, mr. hibe inwill be here tomorrow. he said he didn't know. a.i.g. chief credit officer said he didn't know. how could it come to be, mr. sullivan, and mr. lewis, that you have $78 billion worth of contract and you do not know that the contracts have a provision in them where you are going to have to post billions of dollars if market value decline which in fact happened? how does that happen?

an i don't want to be -- particularly in the context of compensation, 100 billion plus awarded to you as c.e.o. how does that happen? how would you now characterize that? >> thank you, sir. the only way i can respond is by giving you the facts. the fact is that i only became aware of the portfolio during 2007, although i was receiving reports that did not indicate there were not issues per tange to that portfolio and recognizing that no new business had been written since 2005. >> that's not tru. the book was $54 billion at the end of 2005. it did climb to 78 billion. there were deals in the pipeline and we have a log, there were deals made. now, apparently a decision was made to do it but the full winddown didn't happen immediately. you added another $24 billion of exposure unhedged. >> my ubsing was there was a

meeting of the minds as both my colleagues have articulated between rm and the a.i.g. fp to cease writing that business or writing new business at tend of 2005. as i said, the first time i became aware of the portfolio and clartral, the best of my recollection, sir, is -- >> that's stunning. mr. lewis, you are the chief risk officer. anything you want to add to this? >> i would state that the risk issues that were the focus of the attention at a.i.g. were around the actual credit risks and the underlying portfolios. and our -- the rigorous work that we did together with fp was to determine what the likelihood was of suffering credit losses through defaults and losses tand underlieling morgets. the liquidity aspects were something quite frankly just

didn't focus on to the tent that we now know we should have. these instruments up until the time of the crisis had traded in very narrow bands, highly liquid, aaa securities. until the crisis occurred when they traded off quickly and then there was no market. >> but were you aware that there was a liquidity provision? you weren't. >> no, i was not until the testimony. >> i want to ask one more question and i want to ask a little bit about how this market worked, this over-the-counter market worked. but i want to ask one more question of the two of you, which is to so the decision is made to stop writing protection on subprime backed cdos. even though the exposure continues to climb. but meanwhile, another division

of your company, a.i.g. investments, which invests on behalf of the insurance subsidiaries is uping its bet very substantially, decisions made to change the policy for investment at the very time that one unit is saying let's pull back, a.i.g. investments starts to load in and invested a substantial amount of money, about $49 billion, $49.5 billion or 65% of your $75 billion portfolio of securities backed by subprime mornings. that is by the end of 2007. in the end of the day, so you didn't hedge your credit default swap portfolio. you dramatically increase your securities lending portfolio and at the end of the day you lose about $40 billion, you

lose about $55 on your lending portfolio. how do you begin to up your exposure at one end of your company? price waterhouse cooper said this was a conclusion that this was a risk management failure but you told our staff that you didn't think it was. so you're recognizing a risk in one place but substantially uping your bets in another. how does that happen, the two of you? >> the circumstances at the time were discussed, the concerns, that we had about the overheating of the market and the relaxation of lending standards was discussed throughout the corporation with both financial products and the investment department. the investment department was also responsible, obviously, for investing the cash of the corporation to receive and to earn a profit. so there is a trade-off between

risk and return which our investment professionals are responsible for. we in risk are only obviously concerned about the down side. so what occurred and i think you referred to investment guidelines that established an overall limit, not a directive or an appetite. >> you lifted the limit. >> the limit was determined and it was a quid pro quo, if you will. we agreed to up the limit, the compromise that we reached was that they would, their investments would only be in the highest grade of the securities, bbb, rmbs. there were no cdos in that structure. >> all right. but at the end of the day, you did decline the exposure supposedly in one area, but you upped in another. do you disagree with price waterhouse coopers this was a failure of risk management? >> i think with respect to mr.

lewis articulated what had occurred, there was a dialogue between the credit offices and the erm staff fings, and the decision was made to make those decisions in high-grade securities. >> all right. i guess the answer is still don't believe it's a failure. let me move on. in the time i have right now before we can circle back, i want to probe an issue. i have been fascinated by how this over-the-counter derivatives market worked between parties, particularly the fact it wasn't traded on exchanggs. and clearly i want to get a beed on precipitating factors in the crisis. and i'm trying to at the kind of the heart of the questions i'm going to ask is was it really the diminishing quality of the subprime bending, which you dispute. was it the rapid decline in market values? or were there dominos pushed here along the way? now, it's no secret that goldman sacks was a very significant counter parties of

yours. i believe they had about $78 billion of exposure they had about $21 billion of that exposure. i'm going to enter an item into the record, a cronoly of all the capital calls that goldman sachs made, the amount of collateral you posted, the amount of protection that goldman sachs bought on your company as well as the correspondance back and forth. but when you look at that record, some things are clear. goldman sachs was first in the door demanding collateral, they were the most aggressive in terms of the timing and amount. for example, by the end of the year 2007, of all the counter parties, while there were 27% of your book, you had posted 89% of the posted collateral was for them. by june 30th, while they were 27% of the overall book, 48% of the collateral calls being made were by them. they were way ahead of everyone else in terms of the amount they were asking for, when they

were asking it for, and they were much more aggressive in marking these securities down. and so when i look at this, i'm trying to figure out what happened. are they just reflecting what happened the market happened? what was happening in the market? is it like one of those discovery channel episodes where the cheetah is chasing down the weak member of the herd? is the it the first domino that begins pushing market values? now, in our staff's interview with your, you said that you thought something was up with goldman, because their first collateral call which comes in july 27, 2007, they revise t it quickly downward from 1.8 billion to 1.2 billion, because they based it on the bids. they settled, even though they reserved the rights to dispute for 450 million. you said that mr. sherwood has told you that goldman drnt

cover themselves in glory during this period. later you said that mr. sherwood said that the market is starting to come our way, which you took from our interview as an implicit admission that the collateral calls were too low. you noted that mr. blangfinde announced that goldman was short on the subprime market and you wondered whether goldman was pushing or driving the market. the records here, tonight ask you, how do you perceive what happened here? and i'm trying to get to how do you set market prices during this time period when goldman in its own disclosures as it begins to continue to sell, they sold 63 billion worth of these from i think 2004 all the way through april of 2007, i want you to give me your perception of what was happening here. is that a lot? >> yes. and i will as i go through

this, if i miss anything that you are still interested in, just probe me again and we will go through it. >> and i may have to go to other members because of my time. >> yes, sir. if we take the period of july, the initial collateral calls that came to us, if we put ourselves back into that period, it was a period where it was one of the first periods of increased market disruption due to what was to become the financial cricesiss of 2008. goldman sachs made the call on us of $1.8 billion. they then we were surprised at the magnitude of the call. surprised at the lack of increment talt to the call. it went from nothing to $1.8 billion. obviously, my job is not to trust goldman sachs' numbers but to verify.

we received their numbers. we went out and asked other major participants in the market for pricing on the same instruments or similar instruments, and we received wide variances from the goldman numbers. and goldman's numbers were always lower than the others. >> and i should remark in this chronology they are lower all the way through. >> yes, sir. and so my team, i instruct my team to assert basically the contractual rights that we had, which is the review of the marks and the calls that they are making, along with others, and as you point oud, chairman, the call rapidly declined. it went in the, as you pointed out, 1.8 billion, at the end of july 1.6 billion. it became very rapidly. it then moved to 1.2 billion. and within another ten days. but by the time, if my dates

are right, the very early part of august, the number was down to 600 million. and this time in the market, not a lot is going on. this is, the market is beginning to seize up at this point in time. so not a lot of changes. and my team was in a regular dialogue with the folks at goldman. >> go ahead. >> as we went through this process, we did settle at the 450 million mark. i called my counter paurt of goldman, and i said, look, mike, i don't understand what happened over at your shop where you come in at 1.8 and end at 450 but i did know that it was difficult to source clear views of pricing in a market on transactions that really don't trade actively even in the best of times. and mike said in the call, was, look, i don't think we covered

ourselves in glory in this whole process. and the reason for me calling him was to say, look, we need to meet again. you and i need to sit down and we need to figure out an objective way of getting values here. and how are we going to manage this going forward? and we met to do that again, to sit down and iron that out in september, in the early part of september. so but i think your question is, what is my perception of what is going on? i think my perception at the time and still now is that we were working in an opaque market. because of the market disruptions it was difficult to find price discovery. i think even a firm as esteemed as goldman sachs was having trouble getting price discover yifplt and what may convince me that this was a difficult process was the rapidty at which they lowered their prices. or, in which they raised their prices and lowered the collateral.

>> they kept at it for a number of months. they kept coming. >> i'm sort of segmenting it into these periods. and because what happens then in september is we meet to try and figure out a way in which we can use a contract trull rights that we have in the contract. if you have a strong disagreement in our collateral calls and you don't agree with the counterpart, the contractual rights that exist is for you to ask for a dealer poll. we're not agreeing, let's go to the market, let's get four people to put prices on those, we'll average those out and use those as the ash ter. we went an discussed that in september, and then the process went dormant for a while. but also, at the same time that it went dormant, if you remember in late september, i think the fed may have made it one of the initial rate cuts which add it had relief rally to the market. so this issue went on a back burner.

it wasn't until i think the end of -- very end of october, beginning of november when i received another call from mr. sherwood and he explained to me that they were look agget their month end numbers. he wanted to give me a heads up and that they were going to make another call and another significant amount, and this time their call was at 3 billion. i said to mike, look, we've got to look at these numbers because of what happened the last time, and at that point that was when the response was, well, you know, we think the market is coming our way at this time. >> all right. well, i'm going to move on. there's -- we have entered into the record this full chronology which i believe is the first time this has been done because it's a very interesting look at how this market worked. i do want to return to this issue. i know we have the goldman folks later today, we have a full panel tomorrow morning. if there is time i would like

to follow up with some additional questions but i do want to move to other members at this time. with that, mr. vice chairman. >> thank you, mr. chairman. my understanding from staff is, and first of all i want to thank you for coming. we have to be able to at least understand the mindset and the activities at the time from many different sources to understand the way you looked at the world at that time. and it is always easy in hindsight in anything to talk about what would have, could have, should have. but our goal in part is to try to understand where you were at the time that it happened. and i know, you're looking at where you are today in terms of the value and you make those arguments. and i used to hear an old story which was supposed to be funny

about a guy who pulls up to a gas station in vermont and asks directions of the old yankee there and he finally said, well, have you lied here all your life? and the old guy says not yet. so are you able to project risk ahead? i assume that would have been part of your fundamental business. and the answer that i thaugged i heard from you -- thought i heard from you to the chairman's question was that they haven't fallen apart yet. do you believe you are going o to make money on these? is there going to be a loss eventually? can you project that out? >> vice chairman, nobody can see into the future. what i was responding to, to the chairman's question, was that we employed a very -- one of the questions i think is

that was a credit risk that caused the problem in this portfolio. i think the credit risk analysis that we did and the underwriting standards that we met and the structural supports that were built into the transaction are so far standing the test of time. >> just like the fellow who said not yet. so far. in terms of this assessment, in terms of risk, you mentioned in your testimony something that others have repeated, and that is that those, the underlying structure were, after all, a.a.a. did you ever look into, as part of your due diligence in terms of risk, how the rating companies were coming up with, what were a.a.a. ratings?

and what was a.a.a. a few years ago was or was not the same standard or you simply took the a.a.a. label for what it was? and i guess mr. lewis, you're part of that question as well. >> you're asking me first right? >> sure. go ahead. >> we did a fundamental analysis of the transactions. my feam -- team reviewed the underlying portfolios and the underlying assets within the portfolios directly. so we were not reliant on the rating ainlsizz to tell us what was good or bad in these portfolios. >> so you were observing the degradation of the types of collateral in fact no collateral, no dock loans, that was occurring in the morning activities backing these? >> that is the issue that you

identify about the underwriting standards slipping is exactly what made us come to the conclusion that we needed to exit the subprime underwriting within the multisector cdo business as we saw the beginnings or the potential of those underwritings standards not hitting the targets that we had set because of the issues that you just identified. >> and that was in 2005? >> the analysis was done in the last quarter of 2005 and the decision was made in december of 2005 and then we ran through the portfolio. >> one other date check. mr. sullivan, you indicated that you got the margin call or at least the initial communication with goldman in july of 2007? >> yes, sir. >> and you were not surprised because you knew in the contract that there was a margin call. you were surprised at the size of the margin? >> and was that when you found out there were margin calls?

mr. sullivan? >> thank you, vice chairman. i think to the best of my recollection, it was some weeks or months later. >> after you began the negotiations in terms of whether or not those were appropriate amounts for the margin call? you weren't aware of that at the time it occurred? you found out about it weeks or months later? >> certainly i think no where around the july time i think it was much later on in the year. >> ok. i'm just trying to take this stuff in. i appreciate your cooperation. and i will admit, i have never been bin volved in an enormous, multi-national operation in which apparently there's not as much communication about what i would consider major problems in a significant sector of the business. so i want to ask some questions

. mr. sullivan, about how we got into -- if you weren't aware there were margin calls, i guess i should address toyota mr. cass anno but -- address it to mr. cass ano. but you were in the business fast and furious prior to your recognition that you had dug a hole that you could not climb out of so you stopped digging. was it motivation on the basis of a compensation structure that you were doing all this in the volume that you were doing it because it was a line of business that was going to make a lot of money, or that people who were doing it were making a lot of money? and they're not always the same thing. >> i think that one way of looking at this is to say that we early on in 2005, we took

the decision to run down our portfolio. >> i'm more interested in 2002, 2003, 2004, when you were running it up. >> under -- >> picking one side of the bet from almost all comers. >> i think what you need to look at in these transactions is the underwriting standards that we commited to to do these transactions. i've heard this phrase that it's a one-sided bet. but when you think about the protection that is we built into the contracts through the subordination levels, through the structural supportst that we built into the contracts, and through the very, very strict underwriting standards we performed, it -- this was extremely ry moat risk business. and it's not the credit risk here that eventually became the issue at hand. these -- my point has been that the underwriting standards and the credit risk within these

transactions have to date been supported and still perform. >> then i guess i have to ask you the question. how much money did you get from the federal government? >> for the credit default portfolio? the federal government paid $40 billion. but one of the things i wonder about when i look at that is i've never understood why the $40 billion was accelerated to the counter parents. now, i haven't been involved in that and i'm only looking at it from afar. but when i think about the contractual defenses and the contractual rights we had in the contracts, it has caused me to scratch my head and ask why was it that $40 billion was accelerated to the counter parts. >> ok. so you weren't in the room when that kind of a decision was made. were you in the room when that decision was made? >> no, sir. i had left the company some

months earlier. >> it's always someone else. so partly convenient leaving helps a lot and not fully understanding. this is one of the problems that i have when i try to explain what occurred and so maybe i need a little help. there are people out there who are no longer in their homes through what they believe is really no fault of their own although we could nit pick in terms of why did they go ahead and get money out of their homes in terms of diminishing their equity and all of those other arguments. but what i have a hard time doing is explaining why some people in the business that their taxpayer dollars kept in business even receiving as much as a $1 million a month when some of the folk who lost their homes won't make that much in their lifetimes. and then they read a newspaper story that their tax dollars going to a.i.g., what does a

stand for? >> american. >> american. the taxpayer dollars going to a.i.g. wind up in a bank in great britain, in a bank in germany, a coup of of banks in germany, banks in france, banks in scotland, banks in canada. how do i explain to them based upon what happened to them that what occurred between you and the federal government was something that should have been done, needed to be done, and that in fact was the right thing to do in terms of resolving this issue? is there anything you can give me that i can tell them? >> mr. vice chairman, what i would say is that a.i.g. was

under tremendous liquidity pressure at that point in time, and the taxpayer came in through the federal reserve bank of new york and assisted a.i.g. and our board made the determination to accept that assistance and move on. at that point in time, however, when the government came in, the markets were still in decline and there were further liquidity needs being put upon a.i.g. at that period of time, the federal reserve bank took over negotiations and determined and went and had discussions with the counter parts. we were not a party to that. and the decision was made that the best way to arrest the further requirements of liquidity on a.i.g. would be to set up the ml 3 structure. and through that structure the credit default swaps were

canceled and the decision was made that the cash collateral that we posted that the federal reserve funded would be part of the conversation given to the counter parties as well as the sale of their cdos to the ml-3 structure. >> and what probably begins to concern me even more is that even to date witness, did you see the article in this morning's "new york times,"? >> yes, sir. >> discussing the possibility when you decided, as you indicated, mr. lewis, to accept and move on, that apparently -- and my timing may not be exactly right, the move on part was an agreement that was reached with the federal government in terms of a condition of aid that there would not be certain activities pursued by a.i.g. either of a legal or other nature towards goldman sachs, i think the

story said? were in of you aware of that prior to the story breaking this morning in the "new york times"? >> i was just going to add, sir, i didn't read the article. and, unfortunately, i had left the company months earlier. so i can't respond to your question. >> so you haven't read the article that apparently there was an arrangement in which they would not pursue legal? mr. lewis, i guess you're the one left there. everybody else is going to -- talk about retirement, if i ask. >> i was not aware of that. but our legal department would have been responsible for that, for those negotiations. i was not a party to it. >> well, i guess then i would just ask your opinion. can you give me your opinion of -- you read the story. >> yes. >> how is someone supposed to take the information in the story about that kind of a deal being arranged? how do you take it?

>> well, as i say, i was not involved. i'm not responsible for the legal negotiations of a.i.g. and certainly not for the federal reserve bank. at the time -- >> are you shocked or surprise that had there would be a deal like that? do you think it was a fair thing? would you have done it had you been in their position? aul i'm looking for is a personal response. >> not knowing the other circumstances, i would be surprised. >> you would be surprised that they did agree to that. or maybe the situation was so bad that they would agree to anything, and that's what they wound up agreeing to? >> surprised. but i certainly can't take into conversation other aspects that i'm not aware of. >> the meeting of the financial crisis inquirey commission will come back into order.

we are now in our third session of the day. goldman sachs and dritives. i want to thank mr. conor and mr. broad rick for joining us today. thank you. we will start our session as we usually do, i'm going to ask both you gentlemen to please rise and be sworn, which is customary for all witnesses. if you would please raise your right hand. do you solemnly swear or afif i remember under penalty of personalry that the testimony you are about to provide the commission will be the truth, the whole truth, and nothing but the truth to the best of your knowledge? thank you very much, gentlemen. now, we will -- we are in receipt of your written testimony and we thank you for that. as we have indicated, we would like each of you to make a five-minute opening statement. no more than five minutes. and then we will move to questions and answers by the commission. as you know, we are examining today the role of derivatives in the financial crisis and that will be the context for

the questioning today. in front of you, there are monitors and when that monitor goes to yellow it means there's one minute to go, and when it goes to red that means your time is up. so i would appreciate if you can keep within the designated time. so what we will do is we will start with mr. broad rick, why don't you commence your testimony. and then we'll go to mr. cone. and then microphone on, please. >> very good. thank you. >> chairman, vice chairman, and members of the commission, good afternoon. my name is craig broad rick. i've been the chief risk officer of goldman since 2007 and prior to that the chief firm's officer. i would like to start by addressing the role of risk management. it's an integral part of its business, market making, underwriting and otherwise providing a wide range of

financial services to our clients. the nature of our role of financial intermediary means that we take this risk very willingly but only subject to basic principles which define our overall approach to prudent risk management. first, we must understand the risk that we are taking, how we measure it, how much, in what form, for whom, for how long and by how much that risk might change as market conditions change. secondly, we must determine how we can control the risk. that is, how we can mitigate it through hedging and other means, how we can ensure that it doesn't become too concentrated and so forth. third, we have to feel comfortable that we can achieve a return fror for our shareholders that is appropriately lined with the level of risk that we are taking. to ensure disciplined risk management, we built a substantial risk organization within goldman sachs. if concept, built around four components. the first is effective goffnans of which independence is the cornerstone. the entire control side of the

does not report to and has complete independence from the revenue-generating divisions. this is critical. for example, our controllers group, not our business units, has the final say on the marks of all of our positions. effective governance also comes from participation by all levels of the firm including senior management and through formal committees, informal, and matters. the second component is information. we firmly believe you can't manage what you cannot measure. a central tenant is our daily discipline of marking all the firms positions to current mark lels not where we wish the prices were or should be or where we think they will be tomorrow but rather where we can trade them today. we do so because we believe it's one of the most effective tools for managing risk, providing the most transparent and realistic exposure. today, we have system that is while certainly not perfect are

able to comprehensively capture our positions and track and analyze these positions in multiple of ways that provide valuable insights into our overall portfolio. the third component is people. even with the best technology, ultimately effective risk management involves individuals making continual portfolio judgments. the daily monitoring of our limits is informed by a constant dialogue, especially during abnormal market conditions it's the experience of our business and risk management professionals and their appreciation for the nuances and limitations of each risk measure that help guide the firm in assessing risk exposures and maintaining these within prudent levels. fourds and fible component is the active management positions. as part of this, we believe that proactive hedging of our market and credit risks is beneficial both to our clients and also our firm. most notably by minimizing the potential need for us to take

outside actions during periods of stress. more broadly, effective risk management including hedging soist to reduce systemwide risk, limiting counter party failure of any size could adversely affect the system. in hedging we make active use of a variety of drivetivers which i know is of plash interest to the committee. we do so not because they're the only means of hedging but because they're also the most efficient. derivatives are useful in helping us to facilitate the credit to clients and makes the difference whether a transaction can be excuted or not. given the focus on this in the financial crisis, i want to note my view that this crisis occurred primarily as a result of inadequate risk management and at its heart a deterioration in lending standards. the effects of poor lending decision are multiplied through the use of securitization and other off balance sheet structures which reduce the transparency into these risks but also the capital available to cover any losses.

certainly derivatives facilitate further leverage but from the data i've seen they were relatively small competitors given the losses in this area were a fraction of cash lending related figures. even so derivative exposures need to be managed carefully and that's why we approach the use of these instruments in the way that we manage other types of risks by applying disciplined accounting, employing multip times of risk and current party exposure so that in the aggregate the overall level of risk is kept at manageable levels. we approached hague exercising these same principles. >> how are you doing in terms of time to wrap up? >> half a page. are >> great. >> to be sure we've learned valuable lessons in recent times and it's clear that no approach is without limitations. however, we believe the four basic principles i noted were largely effective in the face of unprecedented market turmoil. thank you. i look forward to answering any

questions. >> thank you. now we will move to mr. cone. >> thank you for the opportunity to contribute to the commission's work to understand the causes of the financial crisis. i would like to begin my testimony with an apology. you have stated that we have not been sufficiently responsive to the fdic's request for information. we apologize for any failure on our part. we have redoubled our efforts to provide the documents and information you want, roadmaps to those documents, and extensive engagement with your staff. we recognize the significance of your mission to commamen the underlying causes of the financial crisis and we will work hard to help you fulfill it. in examining the crisis, one area that has attracted considerable attention has been derivatives. although it can be complex, they are no different from any other financial instrument. drivetis are used to lock in prices or hedge or protect against inflation or credit risk associated with a company. the name derivative implies

these type of instruments derrie their value of prices of underlying assets like stocks, bonds, commodities and interest rates. for like goldman sachs, drivetrives is interrelated in the underlying instruments. whether calculating the value of our position, marking our books or managing our risks, we look at our operations in aggregate which means we include cash and derivatives. this is important because it goes to the heart of how we view risk. concentration of risk within financial institutions can be very dangerous but they can also be brought about through the most basic of products like bank loans or mornings as was the case with many institution that is failed in 2008. for goldman sachs, the cornerstone of risk management is fair fall yeah or mark to market accounting. this commitment to fair value accounting is important with respect to two main issues. the first being a.i.g. we bought credit protection from a.i.g. against the value of financial instruments in