Celebrate Safe Communities

Floor Speech

CELEBRATE SAFE COMMUNITIES -- (Senate - September 30, 2008)

BREAK IN TRANSCRIPT

Mr. DOMENICI. Would the Senator yield?

Mr. DORGAN. I would be happy to yield.

Mr. DOMENICI. Senator, first, I apologize for not hearing all of your remarks. I was in earshot when I heard you talking about available credit, talking about what you could find on the Internet. You showed these advertisements where people are still in the business of trying to sucker Americans into buying things they cannot afford and vice versa, those companies that are treating our Americans who cannot afford things as suckers and getting them in and telling them to buy things they ultimately cannot pay for. Is that part of your talk here today?

Mr. DORGAN. That is correct. My point was, that which has occurred that has caused this unbelievable collapse, I think the Senator from New Mexico would agree that what has precipitated this is the massive amount of failure out there of mortgage-backed securities that are held on the balance sheets of these financial institutions. They turned out to be sour. It has begun to pull down on some of these institutions.

My point was that you can go to the Internet today and you can find exactly the same kind of irresponsible advertising that existed for a long time, including the biggest mortgage bank in the country, Countrywide, which is saying: Bad credit, come over here, we will give you a loan. The same things exists. Go to the Internet today, and you will find exactly the same kind of advertising.

Mr. DOMENICI. I think Countrywide has been taken over by Bank of America.

Mr. DORGAN. It has.

Mr. DOMENICI. Let me say to the Senator--and I am giving you an observation--what has happened, it seems to me, in terms of our efforts to pass a rescue package is that we started out by talking about a bailout--somebody did--and also, at the same time, a Wall Street bailout. You know, what caught my eye as a Senator wondering whether I was going to help with this, until I found out that there was no bailout and Wall Street was not being bailed out, what was happening was--well, let's take the biggest purveyor of mortgage-backed securities, and that happened to be Fannie Mae and Freddie Mac. They had most of them. What they really were, were mortgages on homes that people bought by the hundreds of thousands. As a matter of fact, those two entities have mortgaged more than half, well over half--almost two-thirds of all American houses. They had taken these mortgage-backed securities and they were selling them. That is how they made this inordinate amount of money over the last 10 or 12 years. Then what happened is those mortgage-backed securities--people started looking at it and tried to find out: Where did they get the mortgages?

I wanted to add to your scenario of where all of these bad, what we might call toxic assets, which are mortgage-backed securities that are in default, where did they come from and where are they? And I wanted to make sure that your wonderful talk about this subject included the fact that for a period of time the U.S. Government was pushing very hard on Fannie Mae and Freddie Mac to accept mortgages on homes that any reasonable person knew could not be afforded, could not be paid for, and they were pushing thousands of them to get people in homes even if they could not pay for them. And that is thousands of those--hundreds of thousands are coming home to roost now, as I understand it, and we do not even know where we are, but we find out when a bank starts failing because they are using this as their equity--they bought them--and it turns out to be sour because they are not paying on the mortgage. You go look, and there is a house there backing up that mortgage, and maybe a family was in it, but they are already 6 months in default and they have left the place and it is falling down, and you have a mortgage here that you are holding.

I do not think we ever painted properly for the American people that this was not a bailout of Wall Street; it was an effort to buy up those assets, these mortgages that were out there that were not going to be paid, that could not be paid, and they had gone sour. We are trying to buy them and let the system work while we try to repackage them and sell them. It could very well be, Senator--I think you would agree--that when this $700 billion, or whatever number it is, is used, it will come back to the Federal Government as they sell the toxic assets they buy. They will be buying them and bundling them and selling them again, and they may bring more money 3 or 4 years from now than you paid for them.

So in no way is it a bailout. It is a buyout, if anything. I wondered if you had thought of it that way. Is that a fair reading, as you understand things?

Mr. DORGAN. Well, let me talk about the banker's role for a minute, because the way the Senator describes it is part of my concern. It used to be that when you bought a home, you would go down to the local savings and loan or the local bank and try to negotiate a home loan. Then sitting across the desk, they would evaluate what kind of job do you have, how much family income do you have, how secure is your job, is this a loan we want to provide to you because of the risk, and so on. They would make a judgment about you. They would check your credit rating. That is the way it would work. It doesn't work that way in most cases now. It does in some cases, in most cases not. This has become a big go-go effort to get home loans out there, securitize them, and sell the mortgage-backed securities.

So when we are talking about banks buying mortgage-backed securities, I asked the question: Why should they be buying mortgage-backed securities? They shouldn't even have the right to buy mortgage-backed securities that are cut into these little pieces of sausage and sent upstream when they do not even know what is in them. How many of them are subprime? They don't have any idea. All they see is an advertised yield that says: Well, if I buy this security, I am going to get a big, fat income from it.

Going back, I would like to see us get back to the day when a mortgage is something negotiated across the desk from the local banker. I would like to see the day when you can take a look at the balance sheet of a bank--and I would say in my home State most of our bankers have not been engaged in this at all. They do not have toxic mortgages, by and large. They have not invested in these things. But this became a go-go industry--I described some of them, and I will do it again in a minute--with massive amounts of money being made, on Wall Street, I might say. So Wall Street was wallowing in cash. You know it and I know it--I mean, the highest income earner last year, $3.7 billion; that is $300 million a month, $10 million a day.

So I understand why the American people are angry. They are saying, you know: If you have to do something to rescue the financial system, for gosh sakes, don't let the system collapse, but they also say: Let's clean up this carnival of greed that existed around here that caused this to happen.

So that is why I think the American people--I do not know who uses the term ``bailout'' or ``rescue,'' but that is why the American people looked at this and said: Wait a second, I want you to do the whole job, not half a job. In my judgment, half a job is putting up whatever money you need at this point. Perhaps there is a better way to do it. Perhaps we ought to invest in the capital structure of some of the failing institutions and get a return from that. The other side of it is to decide that, in addition to whatever we decide on the money, we are going to re-regulate and reform. If those two things are not in the bill, I hope those who are now negotiating will put that in the bill because I think the American people might better understand what is going to be done.

Mr. DOMENICI. Let me say in closing that I am not sure that a recovery bill--that we have time to do the kind of reshaping of the regulatory system that the Senator so aptly describes. I don't know that it can be done. That requires an awful lot of hearings and thinking.

I would hope this bill doesn't fail when they have it ready because, as somebody as knowledgeable as you--and you know the problem and you know we are going to have a big failure in our system that is going to affect far more people than the culprits who got us into it. I would hope that ultimately you would help to pass the bill. But I understand you would like other things that are going to be needed. We are going to have to do them. I will not be here. I wish you luck. It has been hard to revamp Freddie Mac and Fannie Mae, but it has been done. I am just not expert enough today to tell you that all of the problems with Fannie Mae and Freddie Mac have been solved because we changed their rules when we helped and tried to stabilize them within the last month. And they are the biggest purveyors of these mortgage-backed securities.

A mortgage-backed security is just a mortgage and a loan put into a package, and it becomes a security so that it can be traded as a security instrument instead of a mortgage being passed around. Sometimes there are lots of them in there, sometimes there are fewer.

But I would hope that, like many others, you would express yourself and talk to the American people about the problem but also suggest that we have to do something now or the banking system, which is our lifeblood--we do not think it is, but the financial system is our lifeblood--will go belly-up.

I believe, like you, that there are many changes to be made, but I sure hope we can pass this bill and then in due course have hearings and insist that we change the regulations, impose new ones, and do some of the things you have been talking about.

I thank you for letting me--I have had plenty of opportunity here on the floor, and I did not mean to barge in on you, but I thought maybe we could have a couple of minutes of exchange so we understand mutually the problem.

Let me also say, Fannie Mae and Freddie Mac fooled a lot of us. I don't ask that as a question of you because I do not want to ask you whether you know it or not, but they were the instrument that permitted America to have so many millions of homes in the hands of our people. But they were, at certain times, the instrument of pushing through, as mortgage-backed securities, hundreds of thousands of mortgages on homes that were being bought by purchasers who it was known could not afford what they were buying. They were in the merry business of the more the merrier, whether they pay or not, and they got away with that, and they fooled me. I am not sure whether they fooled you, but they fooled a lot of Senators and Representatives. I think they have been caught, and I think they are doing business differently. But they were the biggest ones. You can talk about a bank here and there or someone running an advertisement that looks as though it is bad, but they were the ones that were pushing those through. And maybe they were asked to by the Government. There seems to be an enabling act passed that said they were supposed to get out there and do that even if the people could not afford it.

Our American people ultimately, when this episode has ended, are going to be embarrassed with us that during this big-boom era of housing, we were forcing on the market hundreds upon thousands of loans and mortgages in the hands of people that it was known upfront would not be able to pay for the houses. That is what they are going to be surprised about, when they find out that was the case as the hearings commence on changing regulation, as you are suggesting, because we are probably going to be able to identify how many hundreds of thousands of those kinds of loans--they have a name; the name slips me, but we call them toxic assets, but they are subprime loans. Fannie Mae and our Federal Government pushed so that we would sell more houses and get more people in housing. We made a bad mistake.

I yield the floor.

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