Participants: Rep. Peter Defazio; Rep. Marcy Kaptur; Rep. Robert Scott; Rep. Lloyd Doggett; Rep. Rush Holt; Rep. Mazie Hirono; Rep. Donna Edwards; Rep. Elijah Cummings
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REP. DEFAZIO: Thank you. Thank you all for being here.
We have a small group of members. But we believe our views resonate beyond this small group. And also some of the ideas we'll present today resonate very strongly on the Republican side. And I've been in touch with some Republican legislators who are very interested in some of the contests we'll discuss.
There's and there's even a difference of opinion up here. One member voted for the bill. The rest of us didn't. But we all, we all had concerns. And it just led us to different ultimate conclusions. And the underlying concern we all share is, we question the Paulson premise.
That is that giving him 700, borrowing or printing $700 billion, giving it to him and having him buy bad assets, on Wall Street, somehow will solve the interbank loan problem and even less likely the underlying problems of the economy.
And the interesting thing is 400 economists last week questioned that premise. That was brushed off. But if you read today's New York Times, at the point in which the world market thought we were going to adopt the Paulson plan and roll over, it says here, "Other analysts noted that credit markets around the world were almost entirely dysfunctional on Monday morning when political leaders and investors alike assumed Congress had reached a firm deal and would easily approve the bailout." It goes on from there with some detail.
The point is the premise is faulty. And as much as the Democratic leadership has tried to improve it, it still is likely to fail. So we have an alternative. And we would like to talk a little bit about that today and then we're going to have further discussion from other members.
If there's a no-cost or low-cost alternative available for the taxpayers, we should take it. And we have a working paper -- it's not done yet. I'm going to be talking to Darrell Issa on the Republican side and John Shadegg later today. This is a common set of points we have so far, but it's a work in progress. We've tentatively called it the "No BAILOUTS Act" which would be bringing accounting, increased liquidity, oversight and upholding taxpayer security. You have to start with a spiffy name around here. We'll work out the details later. (Laughter.)
But the point is, folks would like to come together on something that doesn't put the taxpayers at risk. That's a common theme among members both who voted for the bill and who voted against the bill. Don't put the taxpayers at risk. The protections in that bill yesterday were nonexistent, in terms of the taxpayers.
So we're saying here, let's try a different approach. And we would deal with some issues that have to do with accounting, mark to market -- and again, there's not unanimity on these, but this -- these are talking points that I put forward to the Republicans and we're discussing. The SEC rules on naked short and on the uptick rule, there seems to be unanimity that those things are counterproductive, unproductive and drive market volatility and have driven some of the cannibalism over the last weeks.
There's a proposal by William Isaac, former head of the FDIC who ran that organization during the Savings & Loan workout, about a net worth certificate program and then there seems to be some coming together again on increasing the FDI insurance limit in order, again, to increase confidence in bank deposits. So that's sort of an initial working list.
And I'm going to defer to other members now, but I just want to say one other thing. If -- and it's rumored that the Senate intends to jam through the same bill, only with a change in the FDIC limit, tomorrow night -- if they do that without a real pay-for, I think there's still going to be tremendous problems in the House. And if you're going to place the bet that Mr. Paulson wants to place, a $700 billion bet, don't let it be with our taxpayer money or putting taxpayers on the hook. We could have a security transfer tax. We had one from 1914 until 1966. Congress, over the objections of "the Street," doubled it during the Great Depression and used that money for reconstruction projects. It would raise, at one-quarter of 1 percent, half of what they charge in London -- $150 billion a year. So if Mr. Paulson wants to borrow and bet $700 billion, we could show that we're not putting taxpayers on the hook; there's a way to pay for it. Investors will pay for it, in tiny, tiny increments. And if his bet doesn't work out, at least we haven't jeopardized the federal Treasury and the dollar and the American taxpayer.
With that, I'll go in order of seniority and Marcy Kaptur would be senior to me, actually, so I kind of jumped ahead of her. Sorry.
REP. KAPTUR: Am I really? (Laughter.)
REP. DEFAZIO: (Chuckles.)
REP. KAPTUR: Thank you. Thank you very much, Congressman DeFazio. And it's a pleasure to join my colleagues here today.
Let me just say, in terms of how it's viewed back in Ohio, yesterday's vote was actually Congress pausing to take a breath for the American people and to make sure that the American people understand that our banking system is fundamentally sound.
The markets today are verifying that, and I think all of us are here because we want a good bill, not a fast bill. We want something that will really work. We don't want to reward bad behavior. We don't want to saddle the taxpayer. And we want to meet the actual economic challenges facing our economy, and those are predominantly two. One is, as Congressman DeFazio has referenced, the credit crunch, which, with change -- changes in the FEC (sic) accounting rules on marked-to-market to fair value accounting and fair economic accounting, would go a long way to easing the credit crunch that our banks are facing, because we don't have a liquidity crisis. We have a credit crisis right now, and that has to do with the way -- this goes back to Sarbanes-Oxley and the way that assets are being booked. It's a false credit crunch.
It is not a real credit crunch. The assets have value and we need to change that accounting in order to ease that burden.
The second challenge we have is on home foreclosures. And I believe Congressman Doggett will be saying more about that, but we need a faster work-out mechanism to preserve the assets that we want to have as working assets at the local level, not dead assets, and find a very, very expeditious way to do that. And Congressman Doggett will reference that.
I also wanted to say that in terms of the current market, 75 percent of our subprime loans are working. They are not dead. They are working. And of the 25 percent that are having troubles, we need to work those out. Right now we don't have a quick and easy mechanism to do that, and that is putting additional pressure on our banking system.
I thought that the way that this was handled in the last couple of weeks was a needless rush to push this Congress in a way that we could not be deliberative in our efforts, and that is truly unfortunate. I think that the proposals we are offering are much more market-oriented and they will bring the kind of discipline -- I like to call it good Midwestern values of prudence and responsibility -- back to the markets. Those that were not responsible will have to pay a price, but also those who have been prudent will not have to pay for their mistakes.
Let me mention one item that the Congressman did not mention in his introduction, and that is I am trying to get included in this proposal an emergency financial crimes office in the Department of Justice. And the mission of that unit would be to investigate any criminal act that led to this crisis -- and there were many -- hold the guilty accountable and disgorge assets from individuals and institutions found guilty. The head of the office would be an experienced non-political career prosecutor appointed by the president and confirmed by the Senate. And Congress would provide sufficient funds to staff the office with qualified attorneys and necessary support staff of accountants and investigators.
I just again want to thank my colleagues. I will end, if I can, with one -- two sentences from a letter I just got this afternoon from a constituent in Vermillion, Ohio, I will call Ray who is very angry. And what he says is that he lives on very little money every day, $23,000 a year. "Corruption and poor management brought all this on. If you up there in Congress are going to pass this bill, then I say it is only right and fair that you pass -- that you the government finish paying off my mortgage, too.
"All of you ran back to Washington to take care of all those overpaid CEOs who brought all this on by themselves.
But when gas went up over $4 a gallon, which hurt every American because it made them pay out another ($)40 to $60 a week in their overstretched budget, all you up there did nothing. You took five weeks off, remember that? Well, all of the Wall Street people hurt just like the rest of us people do. I don't owe them a living." That's how the people in the Ninth Congressional District of Ohio feel today.
REP. DEFAZIO: Thanks, Marcy.
REP. SCOTT: Thank you, Peter. Bobby Scott, Third District of Virginia.
I think we have an opportunity to continue to be thoughtful and look through this problem in a deliberate fashion. We've had an economic problem for several years. We've had the budget -- record budget deficits. We -- eight years ago we had a record surplus, now we have record deficits. The job performance -- job growth has been the worst since the Great Depression. The Dow performance has been the worst in decades. So we've had a problem.
We now have a crisis, and it's important that we think through the crisis and not just -- just react. There are particular problems, and we need to articulate what the problem is so as you fashion your solution, the solution has something to do with the problem.
There are things that can get us through the credit crunch and the illiquidity that the administration has the power to do already. And as Representative DeFazio has said, we've outlined those and we are going to introduce legislation to bring those about.
There are also things that can be done in terms of buying assets, but we're going to make sure that whatever is done at that point be the last option and not the first option. We can deal with the illiquidity and we can deal with the credit crunch. Administratively, we can help the homeowners with programs that will help all homeowners. We have to stop the foreclosure crisis because that's sending prices for homes down for everybody. If the house next door to you is in foreclosure, that hurts the price of your home and puts everybody in the whole neighborhood in jeopardy.
So we need to do things, and there are a number of things that can be done for a lot less than $700 billion. We need to make sure that the taxpayer is considered in all of these deals. Spending $700 billion of the taxpayers' money without any regard to what you're buying or what it's worth is not an appropriate way to go.
We need to do it in a thoughtful, deliberate process. And that's what we're doing.
REP. DOGGETT: Hi. I'm Lloyd Doggett from Texas.
You know since, I guess, the meeting that happened downstairs on a Thursday evening, with Chairman Bernanke and Secretary Paulson and with the leadership, this whole bill, this whole piece of legislation has been fueled by fear and hinged on haste. And that's very much the situation we find ourselves in today, with people saying that it has to be done yesterday or terrible things will happen.
I think the first thing that all of us who voted no, to yesterday's proposal, would have to say is that we're committed to addressing this very serious problem. We just simply want to do it in a responsible way.
We agree with Secretary Paulson, I believe, in his comments yesterday that he has a toolbox. But what we're saying is, use every tool in the box that's appropriate for this situation.
One of those tools that has not yet been used is the emergency power of the FDIC to raise, on an emergency basis, the insurance on federally insured deposits and banks, in much the same way that the Treasury addressed non-banks that have deposits in money markets. And that's a tool that will give confidence to depositors, to anyone who believed the false stories about ATMs suddenly not working and people not being able to get their money out, is raise the insurance and do that.
Another is the issue that Congresswoman Kaptur just talked about. Attorney General Mukasey has rejected calls, as recently as last week, to set up the same type of anti-fraud task force that existed after the Enron debacle. We think that law enforcement is an important part of resolving this financial crisis.
As to the vote that we had yesterday, as you well know, we didn't have a range of alternatives. We had my way or the highway. The only approach that was the subject of negotiations was the approach we had an opportunity to vote on yesterday.
And so long as you have an approach that places all the burden on the taxpayers, present and future generation, and gives all the authority, as to who will buy securities and what price they'll pay and from whom, to the secretary of Treasury without meaningful restraints and that imposes on the American taxpayer not only the burden of bailing out Wall Street but bailing out the Bank of China and the world. Which if you look at the specifics of the legislation, include a lot more words and do include some improvements since those original three pages but do not effectively restrain or limit.
They aspire, they don't require, in this legislation. So long as it has those kind of defects, I personally continue to think it would be a mistake to adopt that legislation.
I believe there are constructive alternatives. Mr. DeFazio referred to some of them. We've been working today looking at other alternatives and hope in coming days, hours, to be advancing those for consideration by other colleagues who are not here today.
REP. HOLT: I'm Rush Holt. I represent the people of central New Jersey. And I'm here as one who voted in favor of the bill yesterday. I would argue that it's not entirely without merit and that there is truly some urgency to the situation. However, every section of that bill could be improved, and as you've heard here today, there are a number of actions that the administration could have taken and could still take that perhaps would be more effective than anything in the bill. And most of all what I'm here to say is that the entire approach could be improved on.
If -- generally speaking, if you want to solve a problem it helps to go to the root of the problem. And yes, the government may have to commit a lot of money to prop up the value of investments, and yes, there is a need to act soon. But rather than coming to the rescue by standing behind investment paper, which is a mix of good and bad mortgages that have poisonous, bad mortgages mixed with good, we could go to the root of the problem and repair the bad mortgages. That has a number of advantages. It helps the homeowner, it helps the neighborhood, it helps the towns, and not incidentally, it helps the investment community.
There is an antecedent.
The Homeowners' Loan Corporation of the 1930s through 1950s helped people, individuals, with their mortgages. It's a federal program that shored up a mortgage -- a collapsing mortgage market of that time. And by the way, when it went out of business, it showed a net plus for taxpayers.
The Homeowners' Loan Corporation is a model that could be used today. Congress and President Roosevelt authorized the equivalent of $76 billion in today's dollars. So this was a large-scale program and it rescued more than a million homeowners' mortgages at that time.
So by going to the root of the problem, we could more effectively deal with the solvency, credit and liquidity problems that we face and reassure the taxpayers that they would really be getting something and something effective for their investment.
REP. HIRONO: Good afternoon. I'm Mazie Hirono, representing the 2nd District in Hawaii. I'm joining my colleagues this afternoon to reassure the public that Congress will act. And when it does so, I hope that we will be presented with a bill that better protects the taxpayers by making them whole, such as in the way described by Mr. DeFazio. And I hope that this bill will also more directly help the homeowners who are facing foreclosure.
One of the problems of the Paulson plan is that it really did not address the underlying economic issues that this country is facing, i.e. the downward spiral of housing costs and our basic economy. And this is why I want to say to the public that we ought to be pushing for the economic stimulus package, which the House passed and which is sitting in the Senate, not going anywhere.
And the reason that this economic stimulus package should be passed is that it creates jobs for Hawaii. It represents $222 million that can be infused into the Hawaii economy for infrastructure support, to create more support for food stamps, extend unemployment benefits. These are the kinds of economic help that will help our families and working people immediately.
So we need to get to the root causes. And I agree with my colleagues that certain no-cost things should have been done by this administration.
Mr. Paulson said that he has a regulatory -- tool books and he hasn't used them, and we're saying go use them. Do what you need to do to help our financial institutions.
REP. EDWARDS: Well, good afternoon. Sometimes -- I'm Donna Edwards. I represent the 4th Congressional District in Maryland. And you always know where you come in the line, because I'm the newest member of Congress. But I'm grateful to be here today with my colleagues.
I did vote no on the legislation yesterday. And it was very clear to me and obvious to me that it was important to do that. I sat up on Sunday night, read every line of the legislation, and I concluded at the end of it that it wasn't going to do the kinds of things that the American people expect, given the circumstances.
And I think that we start with a clean slate. And I do want to commend our leadership because after all, they started with three pages of ideas, bad ideas from Secretary Paulson and from the Bush administration, and they ended up with about the best, I guess, that they could get out of that. But it really is not good enough to deal with the problem. And I want to talk about two separate -- two problems that are separate but related.
First are the issues that you've heard about clearly around what needs to be done from a regulatory standpoint and from the administration, tools that they can use today and that they could have used, frankly, 10 days ago, given the crisis, to try to deal with some of these issues. And I think that what we're calling on today is, we will have legislation that will be in place that will encourage the administration in fact to do exactly -- exactly that.
But again, those tools are at their disposal today. And indeed you can see some of those ideas coming up already -- about increasing the FDIC limits, looking at the SEC accounting rules, and looking at other tools within the FDIC to address the capital problem.
But we also have a crisis of (a bit ?) of confidence in the markets, and I do think that increasing the FDIC limits will help to stabilize some of that -- some of the market and create a confidence level in our banking system that I think is really important. I know that I have been hearing from my constituents throughout the 4th Congressional District. And, you know, and to be sure -- you know, today they woke up and they said, oh, my gosh, what's happening to my pension, what's going on with my bank account? We need to restore that confidence.
But the fact of the matter is that the problems that we face today were not going to be solved by that legislation that we defeated yesterday.
And so again it's a clean slate. We have to do something directly to help homeowners. Even if we had gone through with the $700 billion to buy up these toxic assets, that doesn't get to the underlying mortgages where people are actually losing their homes.
I come from a congressional district in which we're facing some of the highest rates of foreclosure in our state, and I know that Mr. Cummings shares that concern. People are losing their homes. We need to have a structure in place that enables homeowners directly, either through bankruptcy or directly through the federal government, to renegotiate and restructure those loans. That's very different from buying up toxic assets of second, third and fourth mortgages, essentially trading paper.
And so I know that we can get to these things, and we've been presented with very false choices. You know, those of us who voted against the legislation, we were told, you know, you either do this or just do nothing. Not true. There's another choice. It would -- you know, put to bed the legislation that wouldn't do anything, and let's create a proposal that all of us can wrap our heads around and present to the American people, that will solve both a short-term problem and a long-term problem. And I think that that's where we are today. And we're looking forward to working with our leadership to make sure that we can get to a point where we do create stability in the market, but we also address the real needs of homeowners.
And I share my colleagues' concern that without an economic stimulus package to create jobs, invest in our infrastructure and do all the things that we need to prepare for the 21st century, that will still leave us hanging, even if we solve the immediate capital problem.
And so we have, you know, some time to go. You know, let's be clear about where we are and take a deep breath. The market today is just about where it was when George Bush took office eight years ago. And so take a deep breath, step back, and let's deal with these issues in a way that is going to make a difference for homeowners, small businesses, working people and for taxpayers. Thank you very much.
REP. CUMMINGS: Good afternoon, everyone. I'm Congressman Elijah Cummings. I am running a little bit late, just coming back from Baltimore. I was here earlier, but I wanted to meet with some of the business folk in my district, and I literally just got off the phone with the head of Legg Mason, which is located in my district.
Let me be very clear, because, as I've listened to the media today, I think there may have been a little bit of confusion. I want to be very, very clear. I think every single member of Congress understands the urgency of this matter, and we all want to resolve it.
But ladies and gentlemen, let me be very clear that just because we have an urgent situation does not mean that we should fail to be deliberative.
One of the things that I think that we sometimes forget is that this $700 billion is taxpayers' dollars. They have entrusted those dollars to us to make sure that they are spent effectively and efficiently. But in this instance we don't even have them, so this is money that is going to have to be paid back at some point by somebody. And so I applaud my colleagues and I really thank them. This was supposed to be a day off for them, but we've been working all day trying to resolve this issue.
One of the things that concerns me most, and I just want to echo something that Congresswoman Edwards said, I looked at this proposal, and what I'm looking for is balance. I'm worried. I'm concerned about Wall Street and I know all my colleagues are. And we realize that whatever we do for Wall Secret, hopefully, will benefit everybody, but we're also worried about the folk in my neighborhood on Madison Avenue in Baltimore, people who are losing their homes.
And it's not just them who are suffering, but of course we all know is that when we have these foreclosures, what happens is that property values go down. And so what we've been trying to figure out is how do we make sure that we take care of Wall Street but also take care of Madison Avenue. And I'm not talking about Madison Avenue in New York; I'm talking about Madison Avenue in Baltimore, which is located in the inner city, by the way.
And so -- and I think that what we've done here is we've come together to say, look, we are willing to sit down and work with anybody to try to bring resolution to this matter because we want -- we want -- it is so important to us. Every two years when we put our hand up and we say that we are going to protect the people of this country, part of it, part of that protection is making sure that we protect their resources, protect them, and do everything in our power to make their futures the very, very best that they can be.
And this is a part of it. This is a part of that process. But don't -- I think the thing that concerned me more than anything else is when we have a situation where we're told, "Okay, it's $700 billion, please. See you later.
We'll take care of it. Trust us."
And sadly, we can't do that. There's not a lot I agree with with regard to Ronald Reagan, but he did say, "Trust, but verify." And so basically what we're saying is that we want to make sure that, number one, that this is a plan that is balanced, that it helps all the people, that the taxpayers' dollars are used to help them to keep their families stable and their neighborhoods stable and to make sure that -- and as far as the overseeing of this process, The Washington Post had a very interesting article yesterday where it talked about the power that is being given to Secretary Paulson and basically concluded that you've got $700 billion that will be distributed and with not sufficient oversight by the Congress.
I just think that we can do better. That's what this is all about. We can do better. And so the process has slowed down a little bit, but just because this process has slowed down a little bit does not mean that we will not come up with a better product. And we're here to make sure the American people are clear that we are determined -- that we are determined to make sure that this thing is worked out, that it's worked out as fast as it possibly can be, but it's worked out in a way where it's fair to all.
REP. DEFAZIO: Thank you, Elijah.
In light of what Elijah just said, I -- for anyone who would care to transmit it, I would urge people out there in America who are concerned about this and share any of our concerns that we've expressed here to call the Capitol switchboard and particularly to call the United States Senate and make sure they don't jam this thing through tomorrow night to try and jam up the House that's trying to get a better product for the American taxpayer.
So with that, we'd be happy to take your questions.
Q Congressman --
Q The White House -- the White House said today that the Paulson plan would have to be the basis of any plan going forward. Is there any way to modify the basic outline of the Paulson plan in a way that would be -- (off mike) --
REP. DEFAZIO: As I quoted earlier, many -- 400 economists that -- you know, of international repute, foreign markets and others questioned the Paulson premise. This is a guy who's been wrong every step along the way. He told us two weeks ago everything was fine.
He's the one who lurched around between bailing people out, you know, helping sell them to someone else and letting them go under, and then came to us and asked for $700 billion with no strings attached.
I have very little confidence in Mr. Paulson. And I just don't think that is a premise to start with. But as I said at the beginning and, I think, this is shared by most people here, if you go down that path which, many people say, is a risky bet, then that should not be a bet, which is something Mr. Paulson spent a lot of time doing on Wall Street.
It should not be a bet placed by the taxpayers. It should be a bet where the consequences and the money to pay for that bet comes from Wall Street. So if it fails, and we're back here in two months, with another crisis, we won't have exhausted our credit to truly deal with the roots of the problem and some of the things we've talked about here.
Anybody else want to respond to that?
REP. DOGGETT: Put a release out yesterday that went through the bill and cited by section where it appeared that something was being done to limit Secretary Paulson but he wasn't limited; that he still has the unfettered discretion in many key areas that would affect the bottom line, to the taxpayer, that he had when he had his three-page draft; improvements and more words but the same effect.
I think that the Paulson plan was the wrong place to start, to try to have the taxpayers pay for the worst of the toxic paper that no one could value in the private sector, with all the problems associated with that. And I don't think you can just put a patch here and a patch there and get it going again. And so that leaves the important point that Representative DeFazio painted.
If Wall Street is satisfied with that unlimited discretion and all the problems that it poses, in terms of cost for the program, and they're so satisfied with it, they're willing to pay for it, then that's the big patch that would make the plan more palatable. But as long as you have the taxpayers pay for a plan that gives the Bush administration such unlimited control, over how this is done and how the money is spent, I think, we're at risk not only for the $700 billion but, as several people said, for them coming back again.
In fact, I think, Chairman Bernanke made it very clear that they're not saying that this $700 billion will solve the problem. And what we do on this affects what may happen on future proposals.
REP. DEFAZIO: Many credible economists say that if you don't deal with, as Mr. Holt has pointed out, the underlying housing issues, since these securities right now are only 75 percent or 25 percent non-performing, that if housing values drop further, that may go to 50 percent.
And we're back for another $700 billion. As Rush said, you've got to go to the root of the problem.
And there's one other thing, just sort of -- and you know, we read laws for a living, and it's kind of boring sometimes, but this is an eye-opener. I mean, it kept me up -- (laughter) -- because when I read the insurance section, which was supposedly totally innocuous and put in only to satisfy the House Republicans -- and Henry Paulson said to our leaders: Don't worry; I will never use it -- it has one word in there that scares the heck out of me. It says the secretary, in implementing this and selling insurance, may value that insurance on risk. It's discretionary on his part. What do you value insurance on if it isn't risk, if you want to buy up a bunch of junk from your friends and leave the taxpayers holding the bag? I mean, the bill is rife with that sort of stuff.
He also insisted that credit card debt be in this bill. So the U.S. tax- -- and autos -- so now we're going to be in the repo business.
REP. DOGGETT: Everything but pawnshops.
REP. DEFAZIO: I think pawnshops could be squeezed in as financial instruments.
REP. KAPTUR: (Off mike.)
REP. : Yeah. I'm sorry, Marcy.
REP. KAPTUR: (Off mike.)
Secretary Paulson, as someone said yesterday, has more experience as a day trader than a banker. He has never lived in a world where financial regulations created a boundary for him.
So perhaps the experience of the frenzy that was brought into this institution over the last week and a half is somewhat a reflection of what we see on Wall Street in the bull and bear markets every day, in the pits. You think about that psychology versus what happens here. I was very struck by how the deliberative nature of what we are supposed to be was infected by that kind of frenzy, and I don't think it serves the American people very well.
Another point I wanted to make -- and I'm sure all -- many of you are tired because you've worked very hard this week and last week to communicate to the American people. Am I right? Kind of a little weary today?
Q Are you guys tired?
MS./REP. : No, they look more rested --
REP. KAPTUR: They look more rested than we do. But what --
Q We had to read that bill all night! (Laughter.)
REP. KAPTUR: (Chuckling.) You had to read the bill also?
What I wanted to say is, you know, it -- we masked over the fact that the period in which we are living through is not the worst financial crisis America has ever experienced. In fact, this one's pretty small, relatively speaking.
We haven't even had a chance to communicate with the American people about that. I've heard people use the term "Hoover-like" or we're at the precipice. The precipice of what? Is it a little speed bump or is it -- you know? And the reason that's done is to try to put pressure on this Congress.
Let me go back to the 1980s, if I could. Back in the 1980s, this country lost over 3,000 banks. Every bank in Texas disappeared. Continental Illinois Bank in Chicago, one of the largest commercial banks, vaporized. The interest rates in this country were 21 percent. Agricultural banks disappeared by the hundreds from coast to coast. Do you know that the resolution of that situation was done with market discipline? Over a hundred billion dollars' worth of assets or lack thereof were resolved for $1.8 billion out of the Federal Deposit Insurance Corporation insurance fund, which was paid for by the industry, not the taxpayer.
Now how is it possible that we could have lived through that as a country -- through two presidents, President Carter and President Reagan -- and we did it with market discipline but we forgot what we did? I'm thinking, how old was, you know, Secretary Paulson back in the late '70s and early '80s? What was he doing? Was he unaware of what this nation did to settle the economy?
We need to inject that same kind of market discipline in what is occurring today and we are not. If we did that, the market itself would help America adjust. The worst thing we can do is keep up this frenzy and this kind of rush to judgment that is so dangerous to the republic. And we shouldn't let any one set of forces, no matter how big they are, railroad the American people.
We have to be deliberate, as Congressman Cummings said, and we have to execute the duties of the office which we are sworn to uphold, and that includes our committees functioning in a normal way so that we can receive the best experts, we can hear the best experts and we can refine what this group and some of our colleagues on the other side of the aisle are trying to put together.
But this frenzy from the pits has to quit in the Congress. It is not helpful.
REP. DEFAZIO: Bobby, go ahead.
REP. SCOTT: Just very briefly -- one of the problems with the fundamental basis of the Paulson plan is that he gets to spend $700 billion of the taxpayers' money without any regard to value.
If he is buying -- if there was a direction in the bill that he would try to ascertain fair value of the assets and only pay fair value, then we'd be getting value for the money. If we held the securities to maturity, we'd probably make money.
The basis of the bill is, he can buy assets without relationship to value, which means he will be buying securities and derivatives and other exotic kinds of securities at -- whatever might help the business survive, without any relationship to value.
Now, if there's any -- and we're put in a position where people are scared unless we do something. Let me tell you, I think people ought to be more afraid that we would actually pass a bill authorizing somebody to spend $700 billion without any regard to what we're getting. And that ought to scare people.
We're taking a deliberative approach. If we're going to -- spending the taxpayers' money, we're going to get full value for it, and we're going to solve the problem.
Q Congressman DeFazio --
REP. DEFAZIO: Yep?
Q -- quick question. One, yesterday you and others were talking about adding transaction -- (off mike).
REP. DEFAZIO: Mm-hmm. (Affirmative.)
Q (Off mike) -- do that? And also, have you discussed any -- (off mike) -- with the leadership -- (off mike) --
REP. DEFAZIO: No. There's basically sort of three tracks here. It's a little complicated. What I'm proposing is something we could agree with Republicans on and what Marcy's talking about -- to use both market discipline and regulatory function, at virtually no cost or perhaps no cost to the taxpayers, to unclog -- or whatever the president says he wants to do, what he said he wanted to do -- the arteries of commerce to begin lending again. Okay? That's what that addresses.
Q Without legislation?
REP. DEFAZIO: And if that goes -- and he -- and the president has substantial power to do that without legislation. It appears we may need to force him to use his power.
So that gets us out from underneath this crush of, you know, you have to give me this money, and I have to do this in order to solve this problem on Wall Street. Once that problem is solved, the Republicans and the Democrats are going to diverge dramatically on the underlying -- they say more tax cuts; we're going to say deal with the underlying problem, deal with housing, deal with stimulus and deal with those things.
And then the third thing is the security transfer fee is only if they are going to insist, if -- as one reporter back there asked, if Henry Paulson says it has to place a $700 billion bet, he has to be allowed to place that bet on Wall Street, then that should not be taxpayers' money. That's a bottom-line thing for us if they're going forward with this construct. That money should not be taxpayers' money on the line; it should be money that Wall Street itself will generate, just like banks generate bank insurance.
It's kind of a pretty well accepted principle except among people in the Bush administration.
Q (Off mike.)
REP. DEFAZIO: I have been to the caucus with the, with the transfer tax. I was initially getting some good momentum. And then they sent in Laura Tyson under the guise of being a Clinton economic adviser, forgetting to tell us she worked for -- she's on Morgan Stanley's board of directors. And she said the Street wouldn't like it. And that was the end of the conversation.
Then John Tanner had a proposal to require a non-specific fee. And they watered it down to saying two presidents from now. That is, we'll have this election; then we'll have another election. That next president, whoever that might be five years from now, will recommend to who's ever in Congress five years from now some possible, potential way of possibly paying for the losses taxpayers withstood. And people went out and said, this bill is paid for.
That wasn't even a transparent fig leaf. That's got to get a lot better. It has to be paid for. If you can do the Paulson plan, I don't believe in the Paulson plan. We've been over all that.
Q Congressman, you've said that you're talking to some of your Republican colleagues. And how would you do this? Would you introduce a bill --
REP. DEFAZIO: Yes. On the regulatory, again back to just the regulatory issues that, we feel, the president -- the tools he should have used, and there's one or two regulatory issues where they would need authority.
We want to do a bill that would both extend the authority in those areas and force the president to use the tools -- or the secretary -- in the other areas: deal with naked short selling, deal with the uptick rule which Chris Cox, you know, despite, you know, all the problems that are going on couldn't do, you know, and finally did but only in a temporary way.
Those are destructive forces we don't need in our markets. And you know, they -- we're in substantial -- I talked to John Shadegg this morning. He had to go home, because his wife is very ill. I've been in touch with Congressman Issa. And they have a substantial following on their side who have signed a letter to the president, outlining some of these same proposals, asking him to use his authorities.
So I think it shouldn't be too hard to come to agreement on that approach, which is targeted specifically at dealing with their stated problem of lending between banks and banks and their, and their business customers. And then beyond that, we have ample room to disagree.
Q Congressman, Senator Dodd said that there were some regrets on the House side, Republicans and Democrats who voted no. But what you're saying is, that doesn't seem to be the case.
REP. DEFAZIO: Well, I have no regrets. It's one of the best votes of my career. (Laughter.)
And I -- and it restored my faith in the democratic process and in the people's House of Representatives. So I don't know who those people are, but it's not me. And I don't know if there's anybody here who wants to --
Q How much time do you think you have -- (off mike)?
REP. DEFAZIO: Well, I don't know what the Dow is up now. It was up 400 when we came in. I'm not sure.
REP. : Probably down 400.
REP. DEFAZIO: Yeah, who knows? But the point is --
REP. : (Off mike.) (Laughter.)
REP. DEFAZIO: And who was it who said -- I mean, you might repeat it -- if we don't get this right, we're going to be back, and our credit is going to be about exhausted. And I don't think they got it right. That's my -- let anyone address that.
REP. DOGGETT: I would just say my regret is --
Q (Off mike) -- mike, please.
REP. DOGGETT: My only regret is that we had one "take it or leave it" approach. All of us wanted to be constructive and positive to prevent further economic deterioration, but when the only choice presented is to ask the taxpayers to pay $700 billion for this proposal that grants so much unfettered discretion, that's just not right. And we had to -- we didn't have a choice to offer any alternatives. We had this way or no way.
Q Quick question. So, once you introduce --
REP. CUMMINGS: Let me just say this to your question. I have no regrets for doing my job. None. In my district we hold these seminars where people come in who are losing their houses, and it's very, very painful. And these people have paid taxes, and maybe they lost their job or whatever, but they paid taxes for years and years. And they have given their blood, their sweat, their tears to this country. Some of them get up at 5:00 in the morning, catch the bus, work two jobs.
And now, a time when the question is being asked, what should we do with $700 billion, and they say, "You know what? I just want a little help. I just want to make sure that I can stay in my house and just hold on to my dream."
And so I was glad that we were able to slow down this train. Sometimes a train has to be slowed down so that you can get it on track. And I think that's basically what we had to do here.
And I'm proud. I am really proud of what we have been able to accomplish. No -- this is not about -- as far as I'm concerned, it's not about Republican, it's not about Democrat, it's about America. But it's about every single American, every single one. And that's what has given this country our moral authority. We have made sure that we have been a fair country to the -- all our citizens. And so that's my duty, that's my job, that's I'm here today. That's why I'll be here until this thing is resolved.
And I know that every -- and you know what makes me feel real good? I know that everybody up here -- and 435 of all of us -- 435 feel the same way. They may have different ways of approaching the problem. And I don't -- I don't beat up on anybody because of the way they voted or whatever because I know they come with their own experiences and whatever.
But my experience in my district with the people who are losing their houses, and I've got to look it -- look in their eyes, and they ask me, Cummings, what are you going to do, and then I tell them that -- that -- a fellow named Paulson, who they don't know, came and asked for $700 billion of their money to bail out Wall Street. And they don't mind bailing out Wall Street, but then they say -- they ask one question: What about me? What about me? So I don't have any regrets.
Q Congressman Cummings, what did the business people in your district tell you today? Because some of the senators were saying that they're hearing some business folks are having trouble making payroll because of the credit --
REP. CUMMINGS: What my business folks said to me is, Cummings, we understand. First of all, I wanted to make sure that they understood that I understood. See? Because I think there was a misconception that we don't understand the urgency of the moment. We got -- we understand the urgency. We got that.
But we also want fairness. And when I explained it to him, he said, you know what? You're absolutely right. I'm with you. Because they understand -- and I told him, you can't come and ask for $700 billion of taxpayer money and not -- and the people in the Seventh Congressional District not benefit when they're losing their houses.
And this stimulus program -- let me tell you something. What really upsets me -- this stimulus piece really upsets me. They say that we're -- it's going to be difficult to get the stimulus piece out. It's a $40 billion package or thereabout. And we can't seem to get that done so that we can have jobs, so that we can have food stamps, so that we can allow our structure -- our infrastructure to be built back up. But yet and still overnight we're supposed to come up with the $700 billion?
I mean, come on, now. And so the people that I go back to and I talk to on -- and see, I live in Baltimore, so I go home every night, so I have to face them every night. And they want to know -- they want to know, "Well, Cummings, what are they going to do for us?"
And so what we're talking about is fairness. And so to the head of Legg Mason, when I talked to him today, I explained that to him, and he says, "You know what? I get it." I said, "I get it, too."
Q I have question. Your leadership is going to have to bring this up, this bill. Will they bring it up? You know, I mean, if this is all in your hands --
REP. : They have to bring up something.
REP. EDWARDS: This is -- you know what? This is a --
Q Well, no, but that's what I'm saying --
REP. EDWARDS: But this a work in progress, right? This is a work in progress. We started out with something that failed yesterday and it's a clean slate. And it's our -- and it's our job for our constituents and for the country for us to say, you know what? There's another way. And that's what we're doing here today.
And I just want to say to you -- because I, too, have to go home every night and go to the grocery store and have people stop me -- but the calls that I made yesterday were to my business community, to ask them before I cast my vote what they think.
And here's what businesses were saying to me. There were a lot of -- are small businesses that are operating not on a credit basis, because they've never been able to get credit, but they're operating on a cash basis. There are also -- there are also people in our business community who are saying to themselves, "But for us -- what does this mean for us?" And I couldn't tell them that.
There are homeowners -- we got very few calls from people who wanted me to do this, frankly. And then, you know, when I think about the calls that we got yesterday saying do it, it was from the American Bankers' Association, it was from the financial services industry, but the people were saying, "Hold it a second. We know that there's a problem but this isn't the fix."
And frankly, when I look at what the delivery is for real people I didn't see it in this legislation. The secretary had very discretionary authority to work out loans -- and when you -- work out home mortgages. And when you look at the underlying home mortgages, there were very few that would be captured in buying up those assets.
And all we're saying here -- and I think Congressman Cummings said it really well -- is let's just give the American taxpayer a fair deal.
REP. SCOTT: Can I make one quick -- you know, at some point, it's important to articulate the problem and then review the legislation to see how you deal with the problem. In terms of credit -- and there appear to be many instances -- at least anecdotal -- that people are having trouble getting credit. If you want to deal with the credit problem -- the things on the list that Representative DeFazio mentioned -- the network certificates will help with the credit.
Mark-to-market will increase your lending authority. FDIC insurance will limit the number of people pulling their money out of banks. These will deal with the problem.
Overpaying for assets, buying worthless pieces of paper with the taxpayers' money, will not alleviate the credit crunch. It will -- may help a speculator get out of a bad deal, but it will not deal with the problem. And that's why we need to slow down and be deliberate and thoughtful, articulate the problem, and solve the problem.
REP. DEFAZIO: Does anybody else want to speak to anything?
Q One question for Congressman Holt.
REP. HOLT: Yes?
Q You -- you're the only person here who voted for the bill yesterday.
REP. HOLT: Yeah, and with -- I -- like the others with their votes, I have no regrets about that.
Q Right, okay. And would you say that, theoretically, you're -- (inaudible) -- this alternative package --
REP. HOLT: No, I've argued all along. I mean, I was part -- I mean, I -- we were all working around the edges of the negotiations as best we could to get them to, number one, address the real problem, to go to the root of the problem. And to the extent that they were dealing with executive compensation and taxpayer equity and to really deal with those things, so that when they talk about executive compensation there are real limits on executive compensation; when they talk about taxpayer equity, they really specify how the taxpayer gets something.
So we've been working on that all along. And I have said that whether or not this bill passes, we should very soon go to a -- some sort of mortgage rescue program -- it might also include bankruptcy reform -- that will help make the homeowners whole and will help remove the poisonous mortgages from the system. It could be done best first. But if it's not going to be done first, then we'd better do it soon.
Q Have any of you been invited to (present your ?) ideas to (the negotiators ?) today?
REP. DEFAZIO: Well, I -- (laughter) -- I spoke with a member of the leadership who said they would try and get me invited to be involved in some discussions tomorrow evening or Thursday morning, but it's not exactly an engraved invitation yet.
Q But then again, there is the same -- that's the question I was asking earlier.
If you put this out there, will you have enough support? If you have to come up with a petition -- a discharge petition, would you have enough support to get this done on the floor?
REP. DEFAZIO: There are a large number of Republicans interested -- there are a large number of Republicans interested in dividing the question here and dealing with low-cost, no-cost ways of dealing with the credit crunch. And I think that -- I don't think there's anybody on the Democratic side who would disagree. If we could communicate that to our caucus and say, look, there's a low-cost or no-cost, low- risk way to deal with the credit crunch, and then we as Democrats can propose what we think as Democrats we need to do to deal with the problems of people losing their homes, to deal with the problems of our crumbling infrastructure, and stimulating the economy from the bottom up, then we go to our own camps, because Republicans will say more tax cuts and we'll say real investment.
But we can, I believe, get a bipartisan, I think virtual unanimity on these sorts of measures. Had the president taken these steps a week or 10 days ago, we might not be in this problem, or Chris Cox at the SEC, you know, before that.
The interesting thing I heard, and just -- but I had all my credit unions in last week. They said: Look, we're still open for business; we're fine; our insurance is fine, but there's a funny thing. People with really solvent, long-term businesses and great assets who just have credit lines, who didn't come to us before, are coming to us from the commercial banks, and they say they were told as a commercial bank the FDIC told us to cut off your lines of credit.
So you got to wonder, you know, how is the crunch getting down to Main Street, and you've got to wonder, is the FDIC trying to help or hurt? And are they trying to drive the panic or are they trying to put oil on the waters? That's a really big question, way beyond my pay grade. I've tried to get at what they're doing and I can't.
REP. KAPTUR: Let me follow on. This is a perfect entry for this. I'll take you to Ohio, to the northern part of Ohio, that I represent. Since the late 1980s, what has happened to our banking system is that it has been turned from one that was oriented regionally in community banking -- with collateral, collectibility and character being the primary criteria for making loans -- to a securitized mortgage system. Loans have been turned into bonds, and bonds into international securities.
If you look at the Resolution Trust Corporation, late 1980s, and the eventual passage of FIRREA, the federal enforcement act for the banking system, then you go to 1994, with interstate banking being enacted, every step of the way until 1999 with the adoption of Glass- Steagall Act, which I -- the overturning of Glass-Steagall, that I voted against, what has happened is that local communities have been bled dry of their credit.
But the credit gets vacuumed out and it's taken up. And it's taken up to Wall Street.
Now, maybe that's not true in Baltimore and other places people represent, Honolulu. Maybe it's a different system. But in Ohio, we have no banks left that are locally owned. So the headquarters was moved somewhere else in a place like Toledo. And so we are derivatives. And megabanks control that credit line.
We should not have such a concentrated banking system. And one of the reasons I'm against this proposal is because it gives more power to the very institutions that have done this to our communities.
REP. DEFAZIO: Thanks very much. We appreciate it. Thank you.