Wednesday, May 19, 2010

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on Financial Reform
Remarks as Delivered on the Senate Floor

Mr. ISAKSON. Mr. President, I appreciate the distinguished majority whip. I voted with him last week on the interchange fees on debit cards. I thought it was a good amendment. But I have to take issue. Don't generically accuse those of us in this body of stonewalling a bill or more or less being interested in looking out for Wall Street or anybody else.

A little history lesson is due. First, what brought us into this recession was the subprime market, which the distinguished Senator mentioned, and the housing market. It happened because Members of this body and the body down the way, 13 years ago, began to direct Fannie Mae and Freddie Mac to include in their portfolios a portion of affordable housing loans which were the words for what became subprime loans.

Freddie Mac and Fannie Mae created the market that allowed Wall Street to go find capital and collect that capital, put a high premium on the capital, high interest rate, maybe 200 basis points over the going rate, but then make it a higher credit risk to lenders because that is the way credit works. What happened is, those loans became popular, and because of a government-sponsored entity that began the consumption of those loans, they proliferated. Those securities were sold around the world. When they collapsed, and we went all through that, it was a terrible collapse. But the root of this problem is that Freddie Mac and Fannie Mae were under the direction of the Congress as to what they should do in terms of the securities they owned. I am saying the Congress of the United States, not pointing fingers at any particular party.

With that being true--and I don't think anybody can dispute it--we have a financial reform bill before us that exempts Freddie Mac and Fannie Mae from reform. That doesn't make any sense. If you listen to the arguments to why they weren't there, it is because it was too hard.

These are hard times. Americans are having hard times. It is time we did the hard things. It is time we not try and politically label Members as friends of Wall Street or friends of Main Street. We are all Americans. It is our economy. It is not just part of the economy. I take issue with the labeling that takes place sometimes. Let's talk about the facts that are there, one way or another. Let's let the facts determine what we do.

I didn't vote for cloture because I don't think it is right to leave Freddie Mac and Fannie Mae outside the equation and incorporate every other business on Main Street and on Wall Street to the extent we have. It is right for us to take some of the blame in the Congress. A lot of this wouldn't have happened had we not directed the government-sponsored entities with which we had influence, and the implied full faith and credit of the taxpayers would be the consumers that would create the liquidity for subprime loans.

My only statement to the majority whip is this: I understand facts. The facts are that Freddie Mac and Fannie Mae started this. They are exempt from this piece of legislation. I, for one, take issue with that. We cannot reform and address the concerns that happened if we don't address the root of the problem.

I yield the floor.

The PRESIDING OFFICER. The Senator from Illinois.

Mr. DURBIN. Mr. President, at the risk of a real debate, I invite the Senator from Georgia to stay, if he would, for a moment so we can engage.

Mr. ISAKSON. I am happy to.

Mr. DURBIN. I have the highest respect for the Senator from Georgia personally, and I thank him for his support on my interchange amendment. We have worked on many other issues, and we will in the future. I will concede what he pointed to as a fundamental flaw, a mistake that was made. There was a presumption made that owning a home was such a valuable American ideal--and I know your background; you certainly agree with that--but we went too far. We extended the opportunity for home ownership to people who were not ready. We believed if we pushed them to the limit of how much they could pay, the home would appreciate in value, their incomes would go up, and everything would work out. It turned out that gamble was wrong for some people. Certainly, Fannie Mae and Freddie Mac, as the ultimate guarantors of mortgages, were part of that. There is a government element here. I don't question that for a moment. Certainly some blame lies there.

Blame lies with those people who overextended, bought more than they could afford. They may have been misled into it, but the fact is, they did it. They made mistakes.

Having said that, though, there were a lot of people involved in financial institutions which led them into this, misled them into this. No-doc closings, where people didn't have to present a document proving the amount of income they had, basically telling people: We will give you a mortgage where it is; you will be paying just interest for a few years, and everything will be just fine.

These mortgages where the interest rates would explode in the outyears, and people would not be able to pay, there was a lot of things that went wrong there. But I hope the Senator from Georgia will agree that behind this bill is the notion that some things happened on Wall Street which were outrageous. The fact that we ended up coming up with somewhere in the range of $700 or $800 billion to save most Wall Street institutions is an indication that things were out of hand on Wall Street, that we never want to return to that again.

I will concede to the Senator from Georgia his premise. Do we need to reform Fannie Mae and Freddie Mac? Yes, we do. If we don't, we will pay dearly for it. I don't know if we can accomplish it in this bill, accomplish it at this moment, but it literally has to be done. I have never quarreled with that premise in the debate, nor do I question his starting point that this was part of the problem that led to where we are today.

It is always the best is the enemy of the good around here. We have a good Wall Street reform bill that moves in the right direction to avoid some of the abuses there. To argue that it doesn't include Fannie Mae and Freddie Mac and therefore we can't support it, perhaps we just have a different point of view. I think this is a valuable thing to do to move forward. I will concede his point. He is right in what he said.

Mr. ISAKSON. Will the Senator yield?

Mr. DURBIN. Yes.

Mr. ISAKSON. I appreciate his comment. That was my point. When I was listening to the Senator's speech, I got a little irritated. Then I realized I have probably done the same thing before too. I leaped over some facts that belong in the debate. The fact that the Congress directed Freddie and Fannie to own a percentage of their portfolio in subprime loans was the source of the capital that bought the first securities that created the subprime securities. I do not argue that there are not good things in this bill.

In fact, when the Senator was referring to the liar loans, it was the Isakson-Landrieu amendment that we successfully added to this bill that defined that a qualified loan is to be exempt from risk potential because it requires income verification, requires an employer statement that the employee is hired, and it requires an income ratio that is sufficient to retire debt that is borrowed. I agree with the Senator.

My point was that when all of us make these remarks of what bills are and they are not, we ought to include all of the facts that are in there, not just a select few. I appreciate the Senator's comments. I was proud to be a part of his amendment.

Mr. DURBIN. I thank my colleague from Georgia. It depends on one's perspective. The amendment he just described that he added to the bill is a valuable part of this bill. It wasn't there originally. It is now. I am glad it is. I am happy to support it. That is what we are trying to do today, to move its passage so it becomes the law of the land. But because we fell short by only two Republican votes coming forward today, we can't move forward.

If the position of the Senator is we should not pass his amendment or this underlying bill until we reform Fannie Mae and Freddie Mac, I am with him in terms of the reformation. I don't believe it is reasonable to require this bill to do everything that needs to be done. That is my only difference with the Senator from Georgia.

Mr. ISAKSON. The Senator and I might differ on points, but I defer to the Senator. I wish I had the control to control votes, but I don't. There were two on his side and two on ours. There are people with higher pay grades who were responsible for that. I wanted to make the point about what is, to me, a serious issue with regard to the bill and something that should be considered in the debate.

The PRESIDING OFFICER. The Senator from Connecticut.

Mr. DODD. Mr. President, I don't mean to jump into these things, but I wanted to make a couple comments. First, no one knows real estate like JOHNNY ISAKSON. I have had the privilege of working with the Senator from Georgia over the last year or so on a couple of proposals, one of which I think made a big difference. That was the $8,000 tax credit for home buyers to go out and encourage home purchases and sales. It has proven to be pretty worthwhile. I haven't seen the latest data. My friend is far more familiar than I. But, clearly, for most Americans, home ownership is the single largest and most important acquisition they ever have. It is the greatest wealth creator for most Americans.

As the Senator from Illinois points out, that additional trajectory is where we increased this, and people used that equity to help with retirement and student loans, a variety of things they need as a family.

As my friend from New Hampshire pointed out the other day, there is a history here. I acknowledge that we in Congress have failed in this responsibility, actually going back to around 2003. The Senator from Alabama can correct me. There were various attempts. A good friend of ours, the former chairman of the House Financial Services Committee, Mike Oxley, a Republican, offered one as chairman. They actually got one done.

It was a bipartisan bill in the House on Fannie and Freddie in 2005. It then came to the Senate, and things got bogged down over here. There were attempts, including the former chairman from Alabama, who offered a proposal. Senator Sarbanes did. It went back and forth. We didn't get the job done.

It is important to remember during times such as this, when we are not hesitant to point an accusing finger at other institutions for having helped create this problem, we in Congress collectively did not get the job done with Fannie and Freddie. I join with my colleague from Illinois, it is important we acknowledge that if we are going to be accusing other institutions for malfeasance or misfeasance. In this case, we should have done a better job.

Here is the problem. As the Senator from New Hampshire pointed out--I am quoting him--this issue was ``too complex'' for this bill. The reason is, we don't know what to replace it with at this point. There are a number of ideas floating around because all of us recognize we need to have a housing financing system in place. In the absence of having any in place, around 97 percent of all home mortgages are backed by the Federal Government today. If we pull that rug out at this particular juncture, I don't know what the implications would be. I think they would be pretty profound.

We are caught in this quandary, acknowledging the need to reform and replace Fannie and Freddie, the present structure, but doing so without replacing it with something could pose serious problems in the very area the Senator from Georgia is so knowledgeable in; that is, how do we continue to promote home ownership.

What we did--and I would be the first to admit it, being the author of the provision--is fairly anemic in light of what we need to be doing. We have said we are mandating that there be a study completed with options presented within 6 months. The President of the United States I have heard say on one occasion, maybe more, this is a top priority come next January for him and this Congress to grapple with.

Again, there is nothing there that absolutely requires it, but it will be essential that we come up with options.

I recall the previous Secretary of the Treasury advocating for a public utility concept to replace Fannie and Freddie. I would be the last one to tell others whether that is a good idea or a bad one. But it is one option. Clearly, we have conflicting goals--one of home ownership, which is the very one we all support, combined with the goal of satisfying shareholder interests. What happened is, shareholder interests trumped in a sense the kind of manageable, sensible policy that would promote home ownership at the expense of returning investments for shareholders. That is also a laudable goal. But to have the same entity have the two missions, one for home ownership, one for a return on investment, they collided with each other.

We have ended up in the situation we are in without a great answer--yet--as to how to replace it.

The point I guess I am making is, I totally agree with the Senator's premise. The question is, as chairman of this committee, how do we fix this thing at this point? And I have never suggested with this bill we were dealing with every financial problem in the country. It would be an impossible task for us to take that on.

So all I can say to the Senator, as someone who will not be here next January, is, I hope whoever sits at this desk--or at this desk, across from my good friend from Alabama chairing the committee--that this will be a priority of our Banking Committee. I cannot dictate that. I cannot even bind the next Congress constitutionally with anything we require here. But my fervent hope would be--I cannot think of a more important priority for the Banking Committee of the Senate than to have the reform of Fannie and Freddie because I think we are going to be in deeper and deeper trouble both financially and in terms of home ownership if we do not. So whatever else happens here in the next few days with regard to this bill, I want to thank my friend from Georgia for his continuing commitment to the issue and to say that I associate myself with his concerns. I would also plead that failure to deal with that issue in this bill ought not to be justification for walking away from all the other good things we are trying to accomplish in this legislation.

I thank the Senator for hanging around and listening to this filibuster.

Mr. ISAKSON. Mr. President, will the Senator yield for one comment?

Mr. DODD. I am happy to yield to my friend.

Mr. ISAKSON. First of all, my comments were directed specifically to the speech of the Senator from Illinois.

Mr. DODD. I did not hear it. I apologize.

Mr. ISAKSON. They were not a criticism of the chairman, first of all. I think the ranking member would certainly agree with that.

Second of all, there is some good news that was received today, thanks to the Senator's help, because I could not have done it if it were not for him. We had the tax credit we extended and ultimately passed, which terminated April 30. As to the numbers from the most recent month: the average sales price in the 20 top markets in America, for the first time in 36 months, went up by six-tenths of 1 percent. So the distinguished chairman deserves a lot of credit for that contribution as well.

I was just making sure there was a voice over here that reminded everybody of what got us in this to begin with in the context of the speech of the Senator from Illinois. It was never a criticism of the chairman of the committee.

Mr. DODD. I thank my friend from Georgia.

With that, Mr. President, I suggest the absence of a quorum.

The PRESIDING OFFICER. The clerk will call the roll.

The assistant bill clerk proceeded to call the roll.

Mr. ISAKSON. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDING OFFICER. Without objection, it is so ordered.

AMENDMENT NO. 3746, AS MODIFIED

Mr. ISAKSON. Mr. President, I understand the body may, in a little bit, take up the Whitehouse amendment, and out of an abundance of caution, to be sure my statement is in the Record, I want to speak to that amendment for a second.

I have the greatest respect for the Senator from Rhode Island, Mr. Whitehouse, and all of his work. But the amendment he has proposed basically says that the usury rate to apply to any loan shall be the usury rate in the State, which will take us back to a period of time post 1982 or 1983, when interest rates went to 16 and three-quarters percent. And because usury rates in the United States were 8, 9, or 10 percent in most of the States, there was no money. Usury rates are the maximum ceiling that a loan can do.

Now we have South Dakota and Delaware where there are no usury rates. Most banks are chartered there and, therefore, interest rates on loans are negotiable and competitive. There are a lot of people in public life who think: Well, if you put a ceiling on interest rates, you are guaranteeing the consumer that they are not going to pay a high rate. What you are usually guaranteeing the consumer is, they are going to pay a fixed rate, which is whatever the government says is the usury rate. Floors set by government become ceilings, and ceilings by government become rates.

So I want to caution the body, in considering the Whitehouse amendment, to be very careful what you ask for. Because what you will do is you will put an end to credit in the housing business and in many other types of instruments in the United States, and you will have 50 different usury regimens in 50 different States. You will create a fixed-rate environment by the government, not by competition. What effectively happens is a rise in the cost of credit, a rise in the cost to the consumer, and in the end what I am sure is intended to be beneficial to the consumer will, in fact, cost the consumer more money and be disastrous to the expansion of credit in a time where there is very little credit as it is.

I would respectfully ask the body to consider what we went through in the mid-1980s and early 1980s with interest rates. We hope they will not go up again, but if they do, credit is more important than no credit at all, and usury rates can assure you have no credit at all and end up having the unintended consequence of having a negative impact on the economy.

I would oppose the Whitehouse amendment, should it come up tonight, and I hope the Members of the body will consider the history lesson from the early 1980s.