Press Conference With Senator Kent Conrad And Senator Johnny Isakson
Interview
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SEN. ISAKSON: Welcome. We appreciate you coming today. And I'm very pleased to be joined with Senator Kent Conrad of North Dakota to today talk about a financial markets commission that we are introducing in the United States Senate today.
You know, I was in real estate for 33 years. I was president of a company for 22 years. I went through four recessions: '68, '74, '81-'82 and '90-'91. I've never personally seen anything like the economic times that we're in now. And most troubling at all is really putting your finger on the source of the problem.
In each of those other four recessions -- '74, the Arab oil embargo really kicked off the decline; '68, it was easy money; '90- '91, it was easy money -- those types of things. But this is a pervasive economic worldwide decline caused by a lot of things that we ought to have the answers to.
I was in the United States House post-Enron and post-MCI WorldCom. I saw us react hastily and quickly and pass Sarbanes-Oxley, which had many good points to it. But it was passed in the absence of really a forensic diagnosis of where this country really was and what caused those two problems and the failings of the leadership of those companies.
This commission will have a seven-member commission -- two members appointed by the president of the United States, a member appointed by the speaker of the House and the majority leader of the Senate, a member appointed by the minority leader of the House and the minority leader of the Senate and a member appointed by the chairman of the Federal Reserve -- seven members who are charged with looking into every aspect -- individuals, corporations, public entities, Commodity Futures Trading Commission, the rating agencies, everyone -- so that we can get to the root of the problem.
And it includes direction if in the course of the investigation and the study, they find it necessary or proper to make referrals, to the U.S. Justice Department or to state regulatory authorities or state departments of justice, they are to do so.
I can tell you personally, the gravity of this situation and the size of it happened because some things went on that should not have gone on -- not enough oversight, not enough transparency, not enough accountability. And it's about time we found out what went wrong, why it went wrong, and corrected it from an oversight standpoint.
Lastly I want to reiterate, before we go to Kent, what I said at the beginning. I am delighted to be joined by Senator Conrad. Since I came to the Senate, he's one of those individuals I have learned much from. I appreciate his level head, his common sense. And I am proud to join with him in finding out the answers, to the questions, the American people deserve and hopefully in the end, the oversight the American people must demand.
Kent.
SEN. CONRAD: Thank you, Johnny. Thank you, Senator Isakson, very much for your leadership. I think the idea of a commission, to investigate precisely what has occurred and to hold people accountable, is absolutely essential.
The two most profound events, in the recent history of our country, are the terrible attacks of September 11th and the current crisis in our financial and housing markets.
No economic crisis can be as tragic as the loss of life.
But the broad slide downward in our economy is affecting the lives of millions of Americans. The American dream is in danger of becoming out of reach for many people in our country, and our place as the most powerful nation in the world is at risk. You cannot have national security without economic security.
After 9/11, the Congress established a commission to study the terrorist attacks and to prescribe measures to prevent further attacks in the future. The work of this commission that Senator Isakson and I are proposing today is to mirror the work of that commission.
The 9/11 commission was widely applauded and laid the groundwork for important legislation that made our country safer. Today, we propose to establish a new commission, modeled on the 9/11 commission, to study the near-collapse of our financial and housing markets. If our nation is going to learn from history, we must learn exactly what happened and why. It will inform our decisions as a Congress. And we must hold people accountable. If institutions and individuals broke the law, they must face the consequences.
Commission will have seven members, as Senator Isakson has described, appointed by the president, congressional leaders and the chairman of the Fed. And it will be charged with reporting back to the president, the Congress and the American people within a year. It is our hope that this commission will pave the way for whatever changes need to be made to prevent another economic crisis like this one from ever happening again.
I want to just take a moment to applaud Senator Isakson for the leadership that he has once again demonstrated on what is the most pressing issue facing our country today. We cannot fashion an appropriate response without knowing the causes of what has occurred here. And I thank Senator Isakson for coming forward with what I think is a very constructive proposal and one that deserves our colleagues' support.
SEN. ISAKSON: Thank you, Kent.
We'll be happy to take questions -- or editorialize, whichever way you like.
Yes, sir?
Q Do you think that there needs to be any congressional oversight or even investigations into how the Federal Reserve has lent money in the last year?
SEN. ISAKSON: There is no limitation on this commission. It is designed to be able to look at every aspect; every authority, public or private, or individuals; get the truth on the table; find out the facts. I -- I'll personally say this. In my judgment, there is plenty of blame to go around. But that is the opinion of me.
I want to find the facts out.
I want to find out just how credit default swaps grew outside of regulatory oversight. I want to find out why Moody's and Standard and Poor's would rate as investment grade subprime mortgage-backed securities that included credit card debt. I mean, there are some unconscionable things that we have learned that have happened and, in my judgment -- and this, again, is an opinion -- it fed on itself. I think there was a lot of greed involved. I think there was a lot of chasing of the dollar involved. And I think the interest of the stockholder, but more important, the American citizens, got lost.
But those are all opinions. I want the facts, if for no other reason because I have eight grandchildren -- one new one on the way, I might add, make it nine -- and I am looking forward to their having a future as bright, as hopeful and as prosperous as I have had. And I can tell you another catastrophic event, economic, like this would prevent that from being true. So it's time we got those answers.
Q Can you talk about what should happen -- (off mike)? And also, are you guys -- (off mike) -- Senate talking to members of the House who -- (off mike) -- somewhat similar proposal?
SEN. ISAKSON: We have -- Ken and I have worked hard over the past two weeks to develop this piece of legislation. We have not done a lot of advance lobbying per se, because we both share the common interest we need to do this one right. This is not something for press; this is something for action. I have had some conversations with many of my colleagues in the Senate, and we've talked about the frustration that we all have with getting all the facts out. Senator Conrad and I feel like this is the appropriate way to do it.
It is my suspicion or my guess that this would be referred to the Committee on Banking, but I'm not sure that that's the case. It may go to Finance. But whatever the case, I cannot imagine there would be much of an objection to a forensic audit and to have good minds in a bipartisan fashion looking at what happened and reporting to the American people, just as the 9/11 commission did when they investigated the aspects that led up to that tragic day.
SEN. CONRAD: I would just add to the point -- I agree with everything Senator Isakson said. This simply has to be done. The American people want it done. They want to know how this occurred, they want to know who's responsible, they want to know how to prevent it from ever happening again. And so in talking to my colleagues, I think there is an understanding this simply must be done.
Q You say that the recommendations will be made within a year. Would you envision that -- I mean, already legislative proposals are coming out on how to fix this stuff. Would you urge colleagues to hold off on that stuff until this comes out?
SEN. ISAKSON: Well, I think we've learned things that need to be dealt with already on an incidental basis, so I wouldn't want to say this is a roadblock to moving forward where it's obvious we should move forward. But I do think that when you have an environment in which I have yet to hear an expert say they could diagnose and properly tell you exactly what the right thing to do in response is, nor what it was that got us here, begs that we defer to a blue-ribbon commission with a full budget, subpoena powers and the charge to bring back to the president, the Congress and the people a forensic audit of the entire situation.
I think that makes sense. And I think that will help us to develop better responses in the future, because the SEC is in this, the CFTC's in this, the FDIC is in this, Freddie Mac and Fannie Mae is in this, the committees of the House and the Senate are in this, past administrations are in this and the private sector and Wall Street is in this.
So I mean, there are a lot of things that need to get looked at, and I think that's why a comprehensive commission like this makes precisely good sense.
Q Senator Conrad, can I ask you, just on a separate topic, on the stimulus, your reaction, generally speaking, to the CBO report and -- (off mike) -- and then also, what assurances you've been given the administration will -- what they'll be giving you to ensure that the situation is rectified -- (off mike).
SEN. CONRAD: As you know, yesterday the Congressional Budget Office delivered an analysis that indicated in the appropriated counts in the House package on economic recovery only 38 percent of the money would actually move in the next two years. That struck many of us as being insufficient, inappropriate to meet the needs of the moment; that we have got to make certain that we get the biggest bang for the buck in a way that is timely, to give lift to this economy.
I had a series of discussions with representatives of the administration yesterday. They've told me that they believe by making certain changes that in the overall package, looking at the totality of the package, they will be able to assure us that 75 percent of the money will move within 18 months.
Now, I've not received that assurance yet in writing. I'm told that it is coming. I eagerly await that and the specifics that they will offer on how the package needs to be modified in order to assure that 75 percent of the money in the total package does move within 18 months.
Q Will this concern some of the shovel-ready projects and some of the money going to the states?
SEN. CONRAD: It involves all of the appropriated accounts. So one of the things they're saying to me is obviously the tax part of the package moves more rapidly; the aid to states moves more rapidly.
When you look at the totality, when they make changes as well to the appropriated accounts -- that is, money for road building, money for the energy improvements for our country -- that they are prepared to make certain changes so that that money moves more rapidly, changes in federal regulations and the like, so that that money will flow more rapidly.
I've just come from a meeting of three of the most prominent economists in the country -- Dr. Feldstein, who was the top adviser to Ronald Reagan; Alan Blinder, who was the vice chairman of the Federal Reserve and a member of the Council of Economic Advisers for President Clinton; Mark Zandi, the heady of Moody's -- and all of them are referencing a concern about the CBO analysis, that in the appropriated accounts the money as currently -- as it currently stands, is not going to move quickly enough.
So I think this is something we've got to pay close attention to.
Q Back to the commission, would this commission have subpoena power? And could you foresee such people as former President Bush or Vice President Cheney, former Treasury Secretary Paulson, even Treasury Secretary-designate Geithner, being subpoenaed?
SEN. ISAKSON: The commission has subpoena power. It's funded up to $3 million through the Treasury, which is about the -- I think the exact same amount the 9/11 commission had. They never lacked for the ability to make a thorough investigation. I am not about to stand here, and I doubt if Kent is either, and start listing names of who a commission we're trying to create to find the answers ought to go and seek out.
I think it's like most investigations: You are led down trails as things unveil themselves. And I think there's plenty of blame to go around in the private sector, in the government sector, in the regulatory sector. This is not -- we're not trying to assess blame at somebody or on somebody; we're trying to find out the root cause of the most significant economic decline the United States has experienced in almost a hundred years. And to see -- to do that, you have to have the capital, the manpower and the broad authority, including subpoena power, to find out those answers.
Q Senator ---
SEN. CONRAD: If I could just -- if I could just add to that: Senator Isakson is exactly right. There is subpoena power here.
You know, the individuals you named, you'd never have to subpoena them. I mean, they would, I think, readily agree to come and help share their knowledge of what occurred and how it could be prevented in the future. If you saw the 9/11 commission, it didn't require their subpoena power to get leaders of the country to come forward and share their knowledge.
Q Senator Isakson, if you would, talk a little bit more about your motivation. By that I mean, how many calls are you getting from constituents on this type of thing? And also, if you would, talk about the time -- (off mike) -- I noticed there's a one-year -- (off mike) -- or something.
SEN. ISAKSON: Well, the -- once the commission has a majority appointed, the trigger is pulled, and they're called on to report back within 12 months of that time, with a 60-day extension beyond that for them to continue to serve so they can testify, themselves, on the results of that commission.
I think that for government, doing something within a year is a pretty timely response. And I think that's enough time to find the facts out. It's also expeditious enough for us to come back in the second term of this Congress and pass those things that may or be -- may not be necessary, deal with the regulatory changes that may or may not be necessary, and make the referrals that may or may not be necessary. So I think it's timely, it's without limitation and it's not targeted or -- it's not a political statement.
This is about the American people. The trillions of dollars that have been lost by the American people, given the economic decline, threatens their retirement security; it threatens their present security. And if there are ways we can prevent this from happening again, and if there are people that should shoulder the responsibility for it happening now, the American people deserve that.
Q What about constituents? How many -- give me some sense of how many requests you've gotten from constituents to look into this.
SEN. ISAKSON: My main interest in my private life was real estate and banking. I've gotten lots of interest, because those -- real estate led us into this. But we have learned -- let me tell you all one quick story if I can. You talk about what motivated this.
I was in Kazakhstan in August, on the way out of Afghanistan, on the way to Germany. Kazakhstan is the Russian state, where all the oil is, where the spaceport is, one of the richest countries in the world because of all the oil.
They have built a brand new capital city called Astana; gleaming high-rise towers. As we rode in to town, I noticed, there were 15 or 16 20-30-40-story buildings, half-complete, chain-link fence with razor-wire around them and nobody working on them.
And so when we got to the embassy, the station chief briefed us and said, do you have any questions? And I said, I have one: Is today a holiday? And he said, no; why do you ask? I said, well, you've got all these buildings downtown, half-finished, all chain- link, barbed-wire on them and nobody working; what caused that? He said, the U.S. subprime mortgage-backed securities.
It just happened we were in Kazakhstan 10 days after Merrill Lynch had sold their portfolio and financed it for 22 cents on the dollar. And around the world, people that held those securities marked them down.
The Bank of Kazakhstan, 11.5 time zones away from Washington, D.C., could only stop funding of construction and stop making mortgages, because their capital footings and their balance sheet was in the tank.
That's how pervasive this thing is. And that's when I first realized we were dealing with something a whole lot bigger than the United States and something that wasn't isolated just in one industry or one country. And I think it's very important we understand that.
Tom Friedman's book, "The World Is Flat," demonstrates what's happened in the financial markets, because instantaneously around the world, securities can be traded. Money can be bought and sold. And you can have these types of things go around like a wave. And that is, in fact, what happened with the subprime securities and, I think, other instruments that were created, by AIG, by other entities we all know about, we've read about. It's time to get those facts on the table.
SEN. CONRAD: I can just add, Senator Isakson's story triggered sort of the flipside of that story. I was in November doing a series of community forums across North Dakota. In a few months, I did 50 of them. I was in one small town. And a man stood up who ran a local manufacturing company.
He said, Senator, I have millions of dollars of finished product, on my yard, that's supposed to go to Russia. And the contracts have been signed. It's been purchased. My employees have built the equipment. It's ready to ship. And the financing has collapsed at a Russian bank because of the world economic credit crisis.
So he's a small-town, Johnny, a small-town manufacturer in North Dakota who has put the work in, built the product to go to Russia. And the credit crisis and crunch stops it from moving.
So, you know, the circle is complete. The world is flat.
Q Have either of you seen the report that Merrill Lynch paid out their executive incentives in December even though they knew that Bank of America, their soon-to-be parent company, was taking bailout funds? And is that proper? And should the taxpayers be outraged about that?
SEN. ISAKSON: This taxpayer is. But I have heard of any number of cases -- some were alleged, some may have been true, some probably were true -- where taxpayer money was invested in financial institutions out of the TARP, and subsequent to it or in advance of it, but after the knowledge it was coming, executive compensation or perks were paid out. We know about the AIG trips and stuff like that. That's unconscionable and it's not responsible.
And I'll add to that that I was very frustrated on the report I read about in the media when a number of the banks who received TARP money couldn't really quite explain where it went. And so I think all of that is unconscionable, and all of it begs the question, what went wrong, you know? And there are a lot of opinions, but this commission is going to find out the facts and it's going to add the transparency this crisis needs so we can respond, react, correct and see to it it never happens again.
Q Would you care to comment?
SEN. CONRAD: I don't know the specifics of what occurred there. Just from your description, if that's the accurate set of events, it is completely unacceptable. And we have got to get the root of all of it. And that's what this commission is about -- what occurred, how it can be prevented, and who needs to be held to account.
SEN. ISAKSON: Anyone else? Well, thank you very much for coming.
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