Financial Crisis

Floor Speech

FINANCIAL CRISIS -- (Senate - September 22, 2008)

Ms. KLOBUCHAR. Mr. President, I stand here today to highlight my grave concerns about our financial system and the American economy--a disaster that has been building for months and, in fact, years and last week quickly hit the breaking point.

The latest crisis seemed to come so suddenly, it moved so fast, it spread so far, and went straight to the heart of the global financial system. There is no doubt we are seeing now the biggest financial challenge since the Great Depression, and we are also witnessing the most remarkable degree of Government involvement into our financial system since the 1930s.

It is truly remarkable. Consider the list: Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and AIG. These names used to be confined to the business pages. Now they are at the top of the front pages.

I have strong feelings about what happened here. During the past 8 years, the financial and economic policies of this administration have been off course. They have not managed or led the economy in a responsible manner.

We have gone from a large budget surplus, left by the Clinton administration, to an even larger budget deficit. This administration has been reckless in how it managed Government's finances, and it has been reckless in how it managed its responsibility to ensure a strong, stable financial system.

This administration acted as if the rules don't apply anymore. With loopholes here and there, they don't use the regulations. It permitted the large financial institutions to run amok, to turn the economy into a gambling hall, playing with funny money. Finally, in the 11th hour, the house managers, Bernanke and Paulson, have been asked to step in to shut down the game.

It is hard to exaggerate the magnitude of what has happened. As financial journalist Steven Pearlstein observed last week:

This is what a Category 4 financial crisis looks like. Giant blue-chip financial institutions swept away in a matter of days. Banks refusing to lend to other banks. Russia closing its stock market to stop the panicked selling. Gold soaring $70 in a single trading session. Developing countries' currencies in a free fall. Money-market funds warning they might not be able to return every dollar invested. Daily swings of three, four, five hundred points in the Dow Jones Industrial Average.

It's a painful reminder that, when you strip away all the complexity and trappings from the magnificent new global infrastructure, finance is still a confidence game--and once the confidence goes, there's no telling when the selling will stop.

In some respects, it may look as if all the action is in New York or Washington or London or Tokyo. But we know the consequences are being felt everywhere. This is a broad-based financial crisis. Everyone is affected. If you are trying to buy or sell a home, you are affected. If you are trying to refinance your home, you are affected. If you are trying to get a student loan for tuition, you are affected. If you are a small business owner trying to extend your credit line, you are affected. If you are a farmer trying to buy a new tractor, you are affected. Maybe the only people in America not affected are those who kept their money in mattresses, and we know that is not the answer.

Look at what has happened to the middle class in the last 8 years: wages down an average of $2,000 a year. Expenses up $4,400 a year. That is a net loss of $6,400 a year. That doesn't include people with babies, and childcare, and afterschool care, and the added expenses for college--$6,400 a year. We need solutions and we need them now.

Secretary Paulson has presented his proposal, and I believe we need to change that proposal. I believe there is more we need to do.

First, I believe, in the long term, we need a comprehensive plan, including both a short-term rescue strategy and a long-term approach for economic recovery and rebuilding.

Secondly, we must minimize, as much as possible, the cost to American taxpayers. Private companies that get themselves into deep trouble should not get a free bailout on the backs of America's middle class.

Third, this plan can't be limited to helping Wall Street. We must help the middle class. We must save Main Street from the mistakes of Wall Street, and we must address head on the underlying issue of the housing market and foreclosure crisis. That means providing protection and support to struggling homeowners and restoring confidence in the residential real estate market.

Finally, if this plan proposes that the Federal Government come to the rescue of private financial institutions, then the Government must secure greater oversight of how these companies conduct their business going forward. For companies that receive assistance, there should be a limit placed on dividends. Key executives should have a look-back placed in their compensation package, and there should be a prohibiting of these golden parachutes. I cannot tell you how angry this makes me. Look at Lehman Brothers and their CEO, Richard Fuld. He earned about $45 million. This amounts to roughly $17,000 an hour--$17,000 an hour that he earned. Basically, their firm has been obliterated.

Last year, CEOs of large public companies averaged 340 more times the pay of the average workers. As Warren Buffet once said--and this is from an article by Nicholas Christopher in the New York Times:

In judging whether corporate America is serious about reforming itself, CEO pay remains the acid test.

As he said in this article, it is a test that corporate America is failing.

People can make their money, I suppose, but once we start, as taxpayers in the U.S. Government, buying their assets and backing up their assets and bearing the risk, asking taxpayers to do that, then we have something to say about this executive compensation, and we must say it in any type of a rescue plan.

We also have to make sure going forward that the appropriate financial regulations are in place, that these loopholes are closed. There should be changes in corporate governments to improve the independence of corporate boards and reduce reckless behavior. There should be limits on speculative behavior.

I know everybody is focused a lot on Wall Street. But I have to tell you what is happening on Main Street. In my State of Minnesota, the unemployment rate is at its highest in 22 years. Minnesota's second quarter growth in personal income is only 1 percent--the 49th lowest in the country. Even that 1-percent increase is more than wiped out by inflation.

Home values in the Twin Cities area dropped nearly 14 percent in the second quarter of this year compared to last year. Heating costs this winter are expected to increase by double digits. The latest forecast shows that the cost of natural gas is expected to be 17 percent higher than it was last winter. Prices for fuel oil are expected to be 23 percent higher.

The American people still have faith in our Nation. They know our country and our economy still have great potential. We have the talent, the resources, the know-how, the entrepreneurial spirit, and a passion for innovation. The public is still bullish on America, even though Merrill Lynch may not be.

Although our immediate and urgent goal must be to stabilize the financial system and restore confidence, we also must spend this week asking those tough questions and making sure we have some answers and making sure the proposals that go through the Congress include those limits I talked about on executive pay. If we are going to be asking taxpayers in this country to bear any of this risk, they must include a long-term plan for better financial regulation of these companies. They must include a focus not just on Wall Street but also on Main Street.

Mr. President, I yield the floor and suggest the absence of a quorum.

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