WASHINGTON, DC – Senator Hillary Rodham Clinton today called for swift and strong action to stem the growing credit crisis on Wall Street. Assailing the Bush Administration for ignoring repeated warnings of the growing crisis and failing to provide adequate oversight of an increasingly complicated market, Senator Clinton offered a series of bold, specific proposals, including creating a new version of the Home Owners’ Loan Corporation (HOLC) to restore confidence in the market, curbing the most damaging and manipulative trading practices, providing relief to homeowners facing foreclosure, and reasserting competent federal oversight.

“This is the greatest market upheaval since the Great Depression. We are indeed in a crisis, but in times of crisis, there are opportunities for leadership,” Senator Clinton said.

Leadership in the face of crisis has been woefully lacking from the Bush Administration, Senator Clinton said. The White House ignored both warnings of the growing crisis and proposals from Senator Clinton and others to step in before it grew out of control.

“What we have seen over the course of the last eight years is an administration that refused to recognize the threats lurking in our economy,” Senator Clinton said. “They dismissed my concerns and the concerns of millions of Americans even as the storm clouds gathered. My proposals, as well as those of others, were greeted as too much, too soon. Now we are forced to reckon with too little too late.”

Senator Clinton expressed serious concern about the effects of the market crisis on New Yorkers, including the many homeowners fighting foreclosure and the tens of thousands whose livelihoods depend on Wall Street.

In response, Senator Clinton outlined a series of proposals to address the crisis:

 

• Create a new entity to buy up and quarantine toxic mortgage securities that are dragging down the markets which would allow the markets to stabilize. Last spring Senator Clinton was among the first to call for a new entity modeled after the successful Depression-era Home Owners’ Loan Corporation (HOLC) or the Resolution Trust Corporation (RTC) created after the Savings and Loan crisis.

 

• Place a temporary moratorium on the most abusive stock transactions, many of which involve the “short-selling” of stocks.  Yesterday, Senator Clinton wrote to the Securities and Exchange Commission urging such a moratorium, saying it would provide breathing room for the markets to recover, for investors to make accurate assessments of companies and for regulators to assess what trading practices should be permanently banned.

 

• Convene an emergency economic summit to show the American people their government is working together. Bringing together leaders in the administration and Congress with lenders, consumer advocates, non profits, financial institutions, and all stakeholders will allow a coordinated response to the crisis. 

 

• Aggressively pursue and encourage mortgage modifications. Senator Clinton has introduced legislation to remove barriers to mortgage modification and to encourage lenders to voluntarily work with borrowers to keep them current on payments and in their homes.

 

• Restore competent federal oversight of the increasingly complicated financial markets. The rapid evolution of the securities and banking industry overwhelmed the current regulatory framework, resulting in a “shadow banking system” that operates outside of oversight and without accountability.

 

• Require transparency and accountability on executive pay. Senator Clinton has proposed the Corporate Executive Compensation Accountability and Transparency Act to impose new transparency rules on executive pay, end the accounting techniques that hide compensation, and provide shareholders a say in executive compensation packages.

 

• Ensure the accountability of financial institutions borrowing money from the Federal Reserve’s new lending facilities. Taxpayers deserve to know that the companies they are bailing out are on the road to recovery and aren’t throwing more good money after bad.

 

Senator Clinton urged the administration and the Congress to move quickly to adopt these proposals and prevent the crisis from worsening.

“Time is of the essence. Any delay could be ruinous for both financial institutions and confidence in our markets,” Senator Clinton said.

The transcript of Senator Clinton’s remarks follows.

Senator Clinton: Thank You, Mr. President. We have seen the financial landscape in our country reshaped over night. The titans of Wall Street have been rendered insolvent or even bankrupt. These are firms that survived the Great Depression, World Wars, the attacks of September 11th, but were no match for a mounting credit crisis allowed to escalate in the shadows of our financial system. The Federal Government has taken over Fannie Mae and Freddie Mac. Bear Stearns had to be rescued by J.P. Morgan Chase after the federal government guaranteed J.P. Morgan's investment. And while they're in talks to keep part of the company viable, Lehman Brothers has declared the largest bankruptcy in U.S. history. Merrill Lynch has been purchased by Bank of America and the Federal Government has agreed to rescue AIG. This past Monday we saw the largest drop in the Dow Jones Industrial Average since 9/11. Now even money market funds are affected. For only the second time in our history, one has been valued at less than 100 cents on the dollar. Alan Greenspan has called this a once-in-a-century event. In my state of New York, tens of thousands of hard-working employees have lost their jobs. And the livelihoods of tens of thousands more who depend on Wall Street's economy are threatened as well.

New York City and New York State, already facing serious economic and fiscal challenges, will now be forced to contend with a battered Wall Street, the lifeblood of our state's economy. And the sudden collapse of these firms and the government takeover of some have shaken our markets and buffeted the economy as a whole.

Many are now asking, What's next?

I know that New Yorkers and Americans are deeply concerned and more than a little bewildered. As our markets have grown more complex and interconnected globally, so too have the crises that have emerged. And we are still sorting out the details.

One of the consequences of the secrecy and lack of oversight under the Bush Administration is that we do not know what we do not know. But it is important to recognize what we do know about what went wrong so that we can assess what needs to be done right now to make it right.

What we have seen over the course of the last eight years is an administration that refused to recognize the threats lurking in our economy, no matter what lurked just beneath the surface or what problems were facing middle class families.

Now, we know that many CEO's are paying lower tax rates than their receptionists. We know that President Bush and those who carry his mantle seek to lower those taxes even further. Middle class families have seen their wages decline even as the cost of living has skyrocketed. This administration has the worst job creation record in 70 years. Millions of families were locked into ballooning and unaffordable adjustable-rate loans as this administration stood by denying there was a crisis. Regulators and regulations designed to keep pace with the markets have been steadily chipped away by Washington Republicans even as companies experimented to the tune of hundreds of billions of dollars in ever more complex and risky financial instruments.

Now, we were reassured that the risk was too diversified and investments too sophisticated to put our economy in jeopardy. Meanwhile, behind closed doors, the cracks were showing as the value of mortgage-based securities slipped day by day by day. And the President and his supporters in Congress repeatedly chanted – and still chant the mantra today – that the fundamentals of our economy are strong.

The administration waxed philosophical when middle class families started facing foreclosures at record levels. The administration and their allies derided my proposals over the last two years to offer assistance to troubled homeowners seeking refinancing as a bailout. They dismissed my concerns and the concerns of millions of Americans even as the storm clouds gathered. They said they didn't believe the government should intervene and provide borrowers an affordable opportunity to avoid foreclosure. Even when I and others warned the Bush Administration repeatedly from the start of this crisis that decisive action was demanded immediately to help families stay in their homes, that that was the best way to stave off a deepening economic crisis, their only responses were predictions for a soft landing and that the crisis could be contained.

Well, as I traveled throughout our country, I could see that no soft landing was forthcoming.

Many families, hundreds and even thousands of miles from Wall Street, were having their lives turned upside-down by the home mortgage crisis, and the ripple effects being felt throughout the economy, as a consequence of the broken economic policies of the last eight years.

Unfortunately, the Bush Administration waited until this past summer to admit that massive housing relief was necessary. The administration finally supported in concept much of what I had proposed: mortgage modifications, freezes for unreasonable mortgage rate increases, and an expanded role for the Federal Housing authority.

But their response was half-hearted, without adequate resources or a commitment to enforcement. And so the home mortgage crisis slowly but surely eroded the value of risky debt instruments upon which Wall Street firms were depending. The house of houses of cards began to fall. My proposals, as well as those of others, were greeted as too much, too soon. Now we are forced to reckon with too little, too late.

When giant Wall Street firms revealed their dire straits and turned to this administration for the exact same help as we had sought for middle-class families -- discounted loans, loan modifications and government-backed lending to weather the storm, Adam Smith was nowhere in sight.

Taxpayers have loaned these banks upwards of half a trillion dollars. And after years of laissez-faire policies for the middle class, the Bush Administration has acted on behalf of Wall Street with the largest and most significant federal interventions in the history of our modern financial system. The largest banks in the world can have closed-door meetings with the White House and the Federal Reserve and the Treasury Department to discuss their bailout options, but millions of homeowners with mortgages worth more than their homes, or who are facing default and foreclosure, don't have the same opportunity.

And this administration seems to be once again paralyzed.

Now, I represent both the workers and the homeowners and the investment firms. I wish we had taken action long before this for the sake of all of my constituents, but now we must have a concerted, focused effort. I don't believe we can wait until the next president. I am extremely hopeful and optimistic that we will have a president who will work with us to resolve our economic challenges, but I don't think we can wait.

However, I do believe we can avoid a deepening crisis. We can take steps right now to address the root causes of what is taking place in our economy to stem the tide of foreclosures and mortgage defaults and the aggregating consequences in the credit markets on Wall Street and throughout the global economy.

But we must cast aside the haphazard, half-hearted approach of this administration and bring every stakeholder to the table to seek out and implement the right solutions. We must be as vigilant on behalf of homeowners and middle class families as we are on behalf of Wall Street firms. We must chart a new course based on the facts at hand, not the ideology at work for eight long years. We've tried being reactive. It's time now to be decisive.

No options should be off the table, certainly not because they don't fit into a narrow ideological prism that this administration abandoned -- for some -- at the first signs of trouble. Ideologues in Washington or in the market who thought that the only danger to the marketplace was the Federal Government are now going hat in hand to that same government seeking help to stay afloat.

So to those who suggest that the steps taken thus far are enough, let me be clear: we may need to take even more significant steps to avoid a self-sustaining cycle of depressed home prices and foreclosures with the consequent effects on the entire marketplace.

We've already pumped hundreds of billions of dollars of liquidity into the markets but we still cannot see the end of this crisis. The biggest problem now is that our entire financial market is anchored down by the mortgage securities that are untouchable. We've seen the banks and the financial institutions that had the largest exposures to these instruments among the first to fail. But now we've begun to see some of the mightiest institutions, even those making a profit, fall by the wayside, the market thrown into upheaval, and others the target of predatory short sellers.

The Federal Reserve has used virtually every arrow in its quiver, from rate cuts, opening its lending windows and in desperation has even created some new arrows through its new lending facilities. By some estimates, the Fed has put out more than a half a trillion dollars through discounted loans, bailouts and takeovers to stabilize the market and the economy. While necessary to prevent even deeper disaster, we've seen that the benefits of these actions have had limited effects.

This situation reminds me of that old fable, where people are standing by the side of a river and they keep seeing babies being rushed down the river in the current and they desperately reach out trying to save as many babies as possible. Day after day they're reaching out. They get new tools, they build a bridge, they get a ladder, they're constantly trying to get to those babies. They're hoping that they can save as many, until finally somebody walks up and says, “Who's throwing them in? Go upriver, find out what the real problem is and stop that!”

The real problem has always been the way our home mortgage system got totally out of whack with new kinds of instruments that were sold many times over with very little regard to the realities of life, human nature, and the inevitable ups and downs in the economy, with the results that until we reach in and fix the home mortgage crisis, we can bail out everybody from here till kingdom come, we will not get a handle on this economic crisis.

So here's what I believe we should do.

First, in light of historic bank failures, even with the largest federal intervention in the history of the mortgage market, we need a government entity, a modern-day Homeowners Loan Corporation, referred to as HOLC -- H-O-L-C -- or we need to build on the Resolution Trust Corporation created to help deal with the Savings and Loan Crisis.

Now, I personally believe and was among the very first to suggest that a HOLC, a Homeowners Loan Corporation, could be a preferable way of unfreezing and beginning to fix our struggling mortgage market. Some of my colleagues and many other respected economists and government officials have called for the creation of an entity like the Resolution Trust Corporation, which was created after the Savings and Loan crisis to liquidate in an orderly way the virtually worthless assets that the failed S&L’s held.

Just yesterday in the Wall Street Journal, Paul Volker, and Eugene Ludwig and Nicholas Brady made such a proposal. They said a HOLC, an RTC, we’ve got to come up with an entity that will assume these debts and burdens and begin to work our way out.

Last spring when I called for a modern version of the HOLC, that’s the Depression-era entity that bought up old mortgages and issued new, more affordable ones in their stead, most people did not pay much attention. But I think it's important to note that by the time the HOLC closed its books, that agency had turned a small profit and helped over a million people keep their homes. And this was 70 years ago. Our population has grown dramatically. So, obviously, if we did it right, we would be able to save a lot of homes. And I think if it is administered correctly it could be actually a net expenditure or even winner for the federal government.

Now, with the FHA reforms that I have long championed adopted this summer in our Omnibus Housing Bill, the FHA could be already a modern Homeownership Lender Corporation. But we need to look to new ways to revive and if necessary create a new market for mortgage securities based on sound accounting, transparent recordkeeping and responsible lending.

A new government entity like the HOLC with a focus on attacking the source of the problem can serve the purpose of clearing a lot of those toxic mortgage securities from the market. We know there will not be any semblance of a normal or orderly marketplace until we have found a way to resolve these mortgage securities that are metastasizing in the bottom of our markets. By taking this paper out of the market and quarantining it in this new entity we will be able to give the market breathing room to recover. We will also be able to set the stage for an orderly sale of these securities and in turn allow some of them to recover and actually regain some of their value. Perhaps just as importantly, not only would our financial markets stabilize but so would our housing markets.

This is an extraordinary measure but it is not without precedent. This is the greatest market upheaval since the Great Depression. We are, indeed, in a crisis, and in times of crisis there are opportunities for leadership. Congress could show the American people that leadership working with the President by embracing this bold proposal.

Second, I'm calling on the Securities and Exchange Commission to take immediate action to address the abusive and manipulative short-selling practices that are rattling the markets, threatening firms and jobs and sending shockwaves across the broader economy. I commend the SEC for yesterday tightening rules against manipulative short-selling. The SEC's rulings are a positive step in curbing the heightened volatility casting uncertainty on domestic markets and financial institutions. However, the Commission did not go far enough.

As a Senator from New York, I have a special duty to represent the workers of the financial services industry and to try with all my might to retain New York City as the financial capital of the world. The abuses that have disrupted the markets today will impact the lives of so many far beyond New York.

So I think it's necessary for the SEC to take steps similar to the emergency rule it imposed this past July when the Commission concluded that there now exists a substantial threat of sudden and excessive fluctuations of security prices generally, and disruption in the functioning of the securities markets that could threaten fair and orderly markets.

Conditions now pose a greater threat than they did in July, and several of the institutions that the Commission sought to insulate from abuse do not even exist or certainly not in the in the same form that they did two months ago.

So we need to stay a step ahead, not a step behind. So I urge the Commission, as I expressed yesterday in a letter to Chairman Cox, to move toward a temporary moratorium on all of the abusive and manipulative short-sale practices associated with substantial financial firms like those the Commission identified in July. A temporary moratorium would allow the marketplace to take a step back, take a deep breath, and it would allow the Commission and other regulators to identify and weed out the sources of these abusive transactions.

Moreover the Commission should give close consideration to the many calls for the immediate restoration of the uptick rule, whose repeal has been linked to the recent market volatility and proliferation. I know there are technical problems in terms of moving toward digitized trading but we ought to be able to figure out how to handle those.

Third, I'm calling on President Bush to convene an economic summit right now that brings together leaders in the administration, the Congress, with lenders, consumer advocates, nonprofits, financial institutions and all the stakeholders. Such a summit, I believe, would restore confidence, demonstrate that the entire country is focused on solving the problem we face.

Fourth, I want to propose, once again, that we aggressively pursue and encourage mortgage modifications. I've introduced such legislation. I believe it's important. Ten million homeowners are under water today carrying more than $2 trillion in mortgage debt. That is a huge anchor on our markets and economy. Modification, done right, is a strategy that serves lenders and borrowers as well as the broader markets.

Fifth, it is clear that for too long the rapid evolution of the securities and banking industry overwhelmed our regulatory framework resulting in an entire shadow banking system that operated outside of oversight and without accountability. It’s not enough just to shift responsibility or move lines on a flowchart. We need a new regulatory framework. We've been living off of the one from the Great Depression. Now is the time to create a new framework.

Six, I proposed the Corporate Executive Compensation Accountability and Transparency Act to impose new transparency rules on executive pay and the accounting techniques, the high compensation, and provide shareholders a say in executive compensation packages.

Finally, and seventh, I’m proposing that we require any financial institutions borrowing money from the Federal Reserve’s new lending facilities to open their books and ensure accountability and transparency to identify unsound practices. These banks and other entities have tapped the Fed’s new lending windows levels for over $300 billion in capital. They’ve shifted a lot of that risk onto the backs of our taxpayers. These are unprecedented interventions and we should make sure that these companies aren’t using taxpayer dollars to subsidize golden parachutes or risky investments, throwing your good money after bad. If we're bailing you out we deserve to know exactly your liabilities. And you have to be part of this new regulatory framework.

This crisis has not abated. It's time for us to start acting like Americans again. There isn't anything we can't solve once we put our minds to it. For that we need leadership. I know that our leader, Senator Reid, has said that the Senate will remain in pro forma session. We are ready to work with the administration, to work with the other stakeholders to change course and end the failed economic policies and failure of regulatory oversight that brought us to this point.

Now there’s much more, Madam President, that we need to do. Individuals have to take responsibility. We know that. But in this dynamic environment we must work together to stabilize the market, tackle the root causes that have festered too long, and restore confidence in our economy.

We’ll weather this storm but let's do it sooner instead of later. Let's try to save as many boats in the water right now instead of cleaning up the wreckage on the banks. I believe we can do that, and I thank you, Madam President, for your attention, and I hope that we'll be able to start seeing action very soon. Thank you, and I yield the floor.

 

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