Financial Regulatory Reform

Floor Speech

Mr. VOINOVICH. Mr. President, I rise today to explain my opposition to the Restoring American Financial Stability Act. When the Senate first passed the bill in May, I opposed it and explained my reasons for doing so. At that time I hoped the House and Senate would make some changes to the bill during the conference committee to address the root causes of the financial crisis as well as scale back the overreaching powers granted to the new consumer protection bureau. Unfortunately, neither of these changes occurred, and I still believe the bill largely ignores the glaring, fundamental problems that led to our current fiscal catastrophe while increasing regulatory burdens on business when the economy is still struggling to recover. In addition, as Fareed Zakaria recently noted, the uncertainty created by this and other expansive legislation, such as health care reform and potentially cap and trade, is causing many businesses to refrain from new investments until they can understand the full implications of these measures.

As for this legislation, it is now clear that over the past decade or so, specific factors played a critical role in leading our Nation into the financial crisis that first arrested the credit markets in 2007, leading to the collapse of some of our largest financial services firms and a stock market crash in late 2008. The resulting events produced a widespread foreclosure crisis and a devastating recession with massive job loss and sustained record unemployment, all of which continue to be felt by families throughout Ohio and the Nation. In response, Congress has taken up legislation that purports to correct what went wrong and restore safety, soundness, and stability to our financial markets to foster recovery and fortify the foundation for a strong economy.

Why, then, do I oppose the passage of this legislation? Simply put, because it does not get the job done. This legislation fails to address the causes of the financial crisis, while overreaching in its expanded regulation of businesses, large and small, throughout the economy. I voted to bring the bill to the Senate floor because I believed the American people wanted us to debate the issues that caused the financial collapse and bring forth legislation that would work to minimize the possibility of a future collapse, but this bill fails in too many respects.

First, the bill fails to address two primary causes of the financial meltdown, Fannie Mae and Freddie Mac, whose push to acquire subprime mortgages--spurred by Congress--helped produce a real estate bubble that burst and sent shockwaves across global financial markets, forcing the U.S. economy and other global economies into a tailspin. These now-government-owned institutions, which failed in the midst of the financial crisis, continue to drain taxpayers for billions of dollars. In May, Fannie and Freddie requested an additional $19 billion of taxpayer moneys to fund operations, bringing the total government assistance to roughly $145 billion, or an average of $7.6 billion per month. Moreover, the nonpartisan Congressional Budget Office recently estimated that over the next decade, Fannie and Freddie could cost taxpayers almost $400 billion. Yet these two giant, systemically risky institutions--whose bailouts far outsize any of those given to other financial institutions--are ignored in this legislation.

Second, at the heart of this financial crisis were residential home loans written to borrowers who did not have the ability to pay their mortgages. When these borrowers defaulted on a massive scale, widespread investment securities based on their mortgages lost significant value, sending investors panicking and retreating while portfolios collapsed and credit froze. These loans were made in large part because of poor underwriting standards and a failure by many lenders and brokers to ensure that buyers had the means to repay their loans. During the Senate debate on this legislation, my colleague, Senator BOB CORKER, offered a commonsense amendment to establish sound underwriting standards, including a minimum down payment, full documentation, and proof of income and ability of the borrower to pay the mortgage. Amazingly, my colleagues rejected this amendment, and thus virtually nothing in this legislation addresses this problem.

Third, the new consumer protection bureau created by this bill is too wide in its regulatory scope, and I believe it will saddle businesses with new, often unnecessary burdens. The bureau is granted authority to reach its tentacles like an octopus into various sectors of the economy, and pull businesses that were not part of the problem--including retailers, medical providers such as dentists, lawyers, advertising agencies, and even nonprofits--under new government regulation. Attempts by some of my colleagues to curtail the largely unchecked reach of this new regulator were mostly rejected.

Finally, new regulations related to over-the-counter derivatives fail to adequately protect businesses across Ohio and other States that use these risk management tools. I have heard from many businesses concerned that they could be forced to divert capital away from job-creating investments as a result of new clearing procedures in the legislation. They also complain that they may now be forced to use less customized derivative products, which would result in more--rather than less--risk. As businesses sideline more capital, they become less liquid; as they face more risk, they become less creditworthy, and in turn have less access to credit. I am fearful that these new regulatory burdens will serve primarily to slow any eventual economic recovery rather than address the underlying causes of the financial collapse. For example, uncertainty over these potential effects has created widespread concern among farmers in particular, who had nothing to do with the financial meltdown but could face consequences under the legislation.

In sum, the Restoring American Financial Stability Act fails to address the root causes of the problem and overreaches in its regulation. I am disappointed these concerns were not resolved during the conference committee, and thus I will not support the bill.

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