The Economy

Floor Speech

THE ECONOMY -- (Senate - September 18, 2008)

BREAK IN TRANSCRIPT

Mr. SANDERS. Madam President, I would like to focus on three aspects of the current economic and financial crisis that is wreaking havoc on tens of millions of working families throughout our country and, in fact, people throughout the world. I think the questions we have to deal with are, No. 1, how did this crisis develop; No. 2, what can we do in the short term to address it and to protect middle-class families--people who are scared to death all over our country about losing their 401(k)s, people who are worried about losing their jobs, people who can't afford health insurance today--and, No. 3, what can we do long term to learn from the mistakes of today so that we create an economy where this crisis never erupts again.

I think those are the areas we might want to be focusing on right now.

Madam President, we are here today in the midst of the most serious financial and economic crisis that our country has faced since the Great Depression of the 1930s primarily--primarily--because of one reason; and that is, over the last many years, especially in the last 8 years of President George W. Bush, government policy, government ideology has been dominated by an extreme rightwing position that tells us--and we have heard it over and over and over again on the floor of the Senate--that government is bad, government is evil, government has to get out of the way so we can allow large multinational corporations and the wealthiest people in this country to do all of the wonderful things they will do to create prosperity for all Americans.

Now, among specific policies, what President Bush and others of that view have said is it is important for us to give huge tax breaks--trillions of dollars in tax breaks--to the wealthiest people and largest corporations in our country so they will then invest in America, create good-paying jobs, and their wealth will trickle on down. That is the trickle-on-down theory of economics.

In fact, my friend, Senator Kyl, who just spoke a moment ago, is the lead advocate, along with Senator McCain and many other Republicans, of the repeal of the estate tax that would provides $1 trillion in tax breaks over a 20-year period to the wealthiest three-tenths of 1 percent. Three-tenths of 1 percent receive $1 trillion in tax breaks. That is part of that ideology.

Further, what they have said is, we need to not worry about manufacturing in America because what we should establish is a policy of unfettered free trade. We don't need tariffs. What we need is to allow corporate America the freedom to throw American workers out on the street--people who are making 15, 20, 25 bucks an hour, health care, pensions--because somehow we are going to create wealth in America and good-paying jobs in America as we shut down plants, we move to China, and corporations there pay workers 20, 30 cents an hour, and we bring the products back into this country. Anyone who goes shopping in a mall knows how difficult it is today to find a product made in America, but that is a plus.

I have to say, in that regard, the champion--and he is honest on this one. Senator McCain has been criticized recently for not being the most honest candidate we have seen in terms of his answers and so forth, but he has been honest on this one. He has been the lead advocate of unfettered free trade. This is an important part of this rightwing ideology: that it is good for America that corporations can go to China and bring products back into this country. But the third pillar of this rightwing ideology that I want to discuss this afternoon, and perhaps the most pertinent to the crisis we are now facing, is over and over again what we have heard from President Bush, what we have heard from Senator McCain, what we have heard from many of our Republican friends is, deregulate, deregulate, deregulate; that the government has to get out of the way so that ExxonMobil and the other large multinational corporations can do all of the wonderful things they will do to create wealth in America.

I will just give one example. It is not a major example but a humorous example. All over this country, Madam President, parents who have little kids who play with toys have been worrying about the toys and the quality of the toys coming into this country.

It was recently learned that at the Consumer Product Safety Commission, because of that ideology of deregulation, there was one guy, one person whose job it was to test all of the toys, thousands of different types of toys coming in from China and every other country in the world--many of them unhealthy, many of them having toxic ingredients in them. Because of deregulation, because we have great faith in these companies bringing toys in from China, we didn't even have to have a strong regulatory system. I am happy we have moved in that direction in the last few months, but that was the case.

The deregulation mantra goes obviously a lot deeper than toys. Let me focus for a moment on this issue of deregulation because it is at the heart of the current financial crisis we are facing. I want to say a word about the former Senator who, it turned out, was the chief economic adviser to Senator McCain and who actually was the leader on deregulation.

I know in politics things change from yesterday to today. I have not heard Senator McCain's last pronouncement. I guess he wants to regulate everything today. But yesterday and in the rest of his career he was a champion of deregulation and his major economic adviser was a gentleman named Senator Phil Gramm, formally the Senator from Texas.

To review a little bit of what Senator Gramm's role was in pushing us toward this deregulatory society, as chairman of the Senate Banking Committee in 1999, Senator Gramm spearheaded legislation that bears his name. It is not a great secret, it is his legislation, the so-called *Gramm-Leach-Bliley bill, and that broke down critical regulatory safeguards the Government had put in place after the Great Depression to prevent--what? To prevent exactly what we are seeing today. Senator Gramm spearheaded that effort and broke down those firewalls.

Having laid the groundwork for our crisis in the financial sector, the very next year Senator Phil Gramm is credited--and I do not think there is a lot of debate about this--with slipping into a large unrelated bill legislation that deregulated the electronic energy markets, including, of course, oil. There are leading energy economists--who have testified over and over again just this week, among other committee hearings before Congress--who are telling us that as a result of the deregulation of the energy futures market, 50 percent of the cost of oil, when it was at its peak of $147 a barrel--50 percent of that was due to speculation and that speculation was allowed to take place because of the deregulation of the energy futures market spearheaded by Senator Gramm.

We are seeing what deregulation did to the financial institutions, what it has done to energy prices, but that is not enough. Senator Gramm was a very aggressive and a very effective, if I might say so, Senator. As we all know, the Federal Government is in the process of nationalizing AIG and bailing them out to the tune of $85 billion. AIG, as we all know, is the world's largest insurance company.

It also turns out that the AIG situation is closely tied to the same extremist ideology that has been pushing us toward economic disaster. A key part of the responsibility for AIG's collapse lies once again with this same key Member of the Senate, Senator Phil Gramm, and his rightwing ideology. It turns out that Senator Gramm slipped a 262-page amendment--I always find it amusing how you can ``slip'' a 262-page amendment--into a larger bill that was instrumental in creating, and I know this number is a little bit difficult for anybody in the world to digest, a $62 trillion market for very risky, unregulated financial investments called credit default swaps, that are central to AIG's meltdown.

This is extremely complicated. Very few people understand anything about it. But we are talking about an unregulated $62 trillion market for credit default swaps, which played a major role in the collapse of AIG and the fact that the Federal Government is now in the process of bailing that company out.

As an online article from Time Magazine explains, AIG's traditional insurance business was doing well. In other words, when they were in the business that they had historically been in, actually they did quite well. But what AIG got involved in was more than traditional insurance. They got involved in risky derivative schemes called credit default swaps, or CDSs, that allowed big companies to guarantee each other's risky lending practices. The point here in this whole complicated scheme of things is that all of this is deregulated primarily because of the efforts of Senator Gramm. The big, bad Federal Government no longer can protect consumers, can protect our economy because we are going to trust all of these guys who are playing in a $60-plus trillion business.

In order to give the American people a full understanding of the risks posed by these unregulated credit default swaps, I wish to quote briefly from a September 15 article by Professor Peter Cohen, a graduate of the Wharton School, that details the full scope of the problem we face and the role Senator Gramm had in its creation. Let me quote from Professor Cohen.

Lurking in the background of this collapse of two of Wall Street's biggest names, is a $62 billion segment of the $450 trillion market for derivatives that grew huge thanks to John McCain's chief economic advisor, Phil ..... Gramm. That's because in December 2000, Gramm, while a U.S. Senator, snuck in a 262-page amendment to a government reauthorization bill that created what is now the $62 trillion market for credit default swaps. I realize it is painful to read about yet another Wall Street acronym, but this is important because it will help us understand why the global financial markets are collapsing. ..... CDSs are like insurance policies for bondholders. In exchange for a premium, the bondholders get insurance in case the bondholder can't pay. ..... In the case of the $1.4 trillion worth of Fannie Mae and Freddie Mac bonds, the Government's nationalization last Sunday triggered the CDSs on those bonds. The people who received the CDS premiums are now obligated to deliver those bonds to the ones who paid the premiums.

Professor Cohen continues:

Gramm's 262-page amendment, dubbed the ``Commodity Futures Modernization Act,'' according to the Texas Observer, freed financial institutions from oversight of their CDS transactions. Prior to its passage, they say, banks underwrote mortgages and were responsible for the risks involved. Now through the use of CDSs--which in theory insure the banks against bad debts--those risks are passed along to insurance companies and others .....

wrote the Texas Observer. I will not go on.

The bottom line is Gramm, who is McCain's leading financial adviser, spearheaded the effort to deregulate financial services that opened up this huge unregulated market. The result of that has played a significant role in placing us where we are right now.

We can go on and on. This is complicated stuff and I am sure there are people who can talk about this for many hours. In my view, the time for hand wringing is over. What we have to understand is the efforts of President Bush to ``deregulate, deregulate,'' and those of Senator Gramm, Senator McCain and many others, was wrong. It largely contributed to where we are today.

It seems to me that Congress right now needs to put an end to this radical deregulation. We need to put the safety walls back up in the financial services market.

I was a member of the Banking Committee in the House in 1999 when this whole issue was discussed. Many of us then--a minority, but some of us then--saw exactly what was in line to occur. Some of us at least voted against it.

What we have to do now is understand that we need to reregulate the electronics energy markets, we need to end the unregulated credit default swaps. Unfortunately, the response we have been hearing from the administration and from Wall Street is not to do that but in fact to move us in another direction, which is to push for further consolidation in the financial services sector.

I have a very simple question. Do I hope I am wrong on this one, but I fear I may not be. That question is: What happens when these now even bigger entities, these multi-multi-multibillion dollar corporations--what happens when they run into trouble in the future? None of us hope that happens, but what happens if that does occur? Once again, clearly, it will be the American people who will be on the hook.

This country can no longer afford companies that are too big to fail. If a company is so large that its failure would cause systemic harm to our economy, if it is too big to fail, then it is too big to exist. What we need to do right now is to assess which companies fall into this category.

For a start, I don't think you need to be a Ph.D. in economics to understand this. I think Bank of America, if I may be allowed to say so, is certainly one of those companies. Let's take a look at Bank of America. It is the largest depository institution in our country. It has assets of $1.7 trillion; $711 billion of that money comes from bank deposits representing over 10 percent of all bank deposits in the entire country--one bank, 10 percent of all bank deposits.

In August, the Bank of America bought Countrywide, the largest mortgage lender in the country. And then last week it bought Merrill Lynch, the largest brokerage firm in America. There is so much concentration of wealth in the Bank of America that clearly, if it were to fall in the future, what do you think the U.S. Government is going to say? You can absolutely expect that the President or the Congress will say: My God, we can't allow Bank of America to fall. Because if they fall, it will impact the entire national economy, the entire world economy. The taxpayers of this country are going to have to bail out Bank of America.

My suggestion is before we allow ourselves to be in that position, maybe we make certain the Bank of America never is allowed to have that kind of power.

In my view, we should not be making Bank of America bigger; we should be breaking it up. We should start that process today and we should be breaking up other large financial institutions that are ``too big to fail.''

Finally, in terms of dealing with this unfolding disaster, we need to make certain that working Americans, the middle class of this country, are not asked to foot the bill for the current economic crisis that was brought to us by these large multinationals. If the economic calamity requires a Federal bailout, it should be paid for by those people who actually benefited from the reckless behavior of people empowered by the extreme economic views of Senator Gramm, President Bush, and Senator McCain.

Right now, today, the wealthiest one-tenth of 1 percent earns more income than the bottom 50 percent. That gap between the very rich and everybody else is growing wider. We have the dubious distinction of having by far the most unequal distribution of income in the world, and on top of that the richest 1 percent owns more wealth than the bottom 90 percent.

The wealthiest 400 Americans--this is a startling figure that for obvious reasons people don't talk about too much, but this is amazing. The wealthiest 400 Americans in this country have not only seen their incomes double, but their net worth has increased by $670 billion since President Bush has been in office. Four hundred families have seen their net worth double and increase by $670 billion since President Bush has been in office.

Amazingly, the wealthiest 400 families in our country are now worth over $1.5 trillion--400 families. On average they earn over $214 million a year. As a result of President Bush's policies and the policies of our Republican colleague, the tax rate for these families has been cut almost in half, to 18 percent.

Amazingly--and this is a clearly a national disgrace--the wealthiest 400 families pay a much lower tax rate than most police officers do, than nurses do, than teachers do, than firefighters do.

Now, what does this say about us as a nation or about our politics, or the power of the wealthy over Government, when the middle class is paying a greater percentage of their income, a middle class which is in decline, a middle class where millions of workers have seen a reduction in their wages, and yet they are paying a higher percentage of their income in taxes than the very richest people in America?

It is this very small segment of our population which has made out like bandits, frankly, during the Bush administration. In my view, we need an emergency tax on those at the very top to pay for any losses the Federal Government suffers as a result of efforts to shore up the economy.

In other words, before we ask the middle class to pay more in taxes, before we ask working families to pay more in taxes, it is obvious to me that it is simply fair and right to go to those groups, that group of people who have benefited most out of Bush's policies, who have seen their incomes and their wealth soar. Let's ask them to help us bail out the economy rather than the working families who had nothing, nothing to do with this crisis, and, in fact, who have suffered under the 8 years of President Bush.

Before I finish, I wish to step back for a moment and examine this current crisis in the context of who our Government represents. What does it say about an administration that is prepared to put $85 billion at risk to bail out AIG but which has fought tooth and nail against programs that benefit working families all over this country? In my State of Vermont, people are worried about going cold this winter. And yet President Bush wanted to make hundreds of millions of dollars in cutbacks for the LIHEAP program that keeps people warm because we did not have enough money to do it.

We have enough money to provide hundreds of billions of tax breaks for the top 1 percent, we have enough money to spend $10 billion every month in Iraq, we have enough money to bail out AIG and Bear Stearns, but somehow we do not have enough money to keep people warm, to make sure that young people can go to college, to make sure that working people have affordable housing?

Since George W. Bush has been in office, nearly 6 million Americans have slipped out of the middle class and into poverty; over 7 million Americans have lost their health insurance; more than 4 million Americans have lost their pensions; over 3 million good-paying manufacturing jobs have been lost; total consumer debt has more than doubled; the median income for working-age Americans has gone down by over $2,000, after adjusting for inflation.

The interesting question to ask is, in the midst of that crisis facing tens of millions of working families, where has President Bush been? Where has his voice been in saying we have got to bail out working families who are seeing the decline in their standard of living and are falling into poverty? We have got to protect old people who are going to go cold this winter. We have to make sure that everyone in our country is able to get a decent education and can afford college. We have got to make sure that all Americans have health insurance. I have not heard the President say we need to bail out the middle class or working families, but he surely has been there to bail out large multinational corporations.

The American people deserve better. We need to reject the failed economic policies and priorities of President Bush and John McCain. We need a government that is not going to allow the wealthiest people and the largest corporations to loot our economy. We need a government that will put regulatory firewalls back in the financial sector and end the use of unregulated credit swaps. We need a government that is going to prevent speculators from stealing from them at the gas pump. We need a government that breaks up corporations that are too big to fail. We need a government that is going to view the problems of ordinary Americans as almost as important as they view the needs of large multinational corporations.

In other words, we need a government that represents the people of this country rather than just the wealthy and large multinationals.

I yield the floor.

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