Restoring American Finacial Stability Act of 2010 - Continued
Floor Speech
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Mr. ISAKSON. Mr. President, in deference to the chairman, I will be brief. But I come because I feel compelled today because of the two amendments this body will be dealing with: one is the McCain amendment and another amendment later in the day dealing with underwriting. So I will save the remarks on that for when those amendments are pending.
I agree with Senator Chambliss, and I commend Senator McCain. I come from a lifetime in the real estate business. So what I talk about, I do understand its cause and effect in the marketplace. We cannot have responsible reform of financial services and leave out Freddie Mac and Fannie Mae.
One of the reasons that, along with Senator Conrad, I created the Financial Markets Crisis Commission--which is now meeting, by the way, and will report back at the end of December--is I knew there were pervasive and redundant failures in the system that brought about what became a cataclysmic collapse.
I understand the chairman has been under great pressure to bring this legislation forward, and I have great respect for the chairman and appreciate his work. I wish we had waited until the Financial Markets Crisis Commission reported, but we have not. So let me just for a second address Freddie and Fannie and the McCain amendment.
Freddie and Fannie filled the void the savings and loans created when they failed in the late 1980s. There are a lot of people who will hear this speech who will remember savings and loan days. Those were when savings and loans associations were chartered to make home loans. With the exception of FHA and VA, they basically made them all. There were a few players but not too many.
Those entities, by the way, those savings and loans, had 100 percent risk retention of every loan they made because their depositors put in money for the sole purpose of getting a preferred rate of interest and for mortgage loans to be made to generate the income. But they went under. They went under because of a lot of factors. One was the Federal Government changing in midstream the rules under which they operated which caused them to collapse.
Freddie and Fannie immediately filled that void. They did a great job for a long period of time by creating a secondary market for capital to be formed, put into mortgages, the mortgage be securitized, and the securities traded. It worked for a long time.
It worked, quite frankly, until a couple of things happened. One, until the government all of a sudden told Fannie it started having to own a certain percentage of what it called ``affordable loans,'' which later became known as subprime loans. In fact, Fannie Mae became the purchaser of record for the first subprime securities that were created to meet the congressional mandate to end up having these affordable loans, which made a market for those securities which subsequently were sold around the world.
So I wanted to commend the Senator from Arizona. What he brings before us is important. I do not know how we can leave Freddie and Fannie out and talk about real financial services reform in the United States of America. If anything, they need to be a critical part of it.
I recognize this legislation portends there will be a 2-year wind-down unless they improve. Then there will be a liquidation at some point in time. But let me tell you what is going to happen if nothing happens. At some point in time, Freddie and Fannie will have to be liquidated and a new entity will have to be created that will fill the void when that liquidation takes place. We are going to have the mortgage money in this country one way or another because America would not be America without it.
But we cannot tend to have a black hole and an entity that can be used for political purposes, or was used for political purposes, to create a market for securities that ultimately fails and breaks down the financial market.
I commend the Senator from Arizona. I associate myself with the remarks of the other Senator from Georgia. I thank the distinguished Banking Committee chairman for his time.
I yield back my time.
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