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Details of the Bailout Debated; Congress Grills Bernanke, Paulson; President Bush Meets with Pakistani President
Aired September 23, 2008 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
HEIDI COLLINS, CNN ANCHOR: Breaking news, everybody. While you were sleeping, a college campus in Finland torn apart by a shooting. Student gunman suspected of killing nine people.
A fire also burning at the school is happening right now. We've got the latest for you.
I'm Heidi Collins. It's Tuesday, September 23rd. You are in the CNN NEWSROOM.
The stakes are huge. The price tag staggering. $700 billion of your money. This hour on Capitol Hill, the bailout of the nation's financial system.
Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke likely to face tough questions from lawmakers. And we are likely to hear some alarming answers.
Also this hour, raw nerves on Wall Street. The opening bell minutes away from now. It comes after the Dow Jones Industrial Average has lost 372 points yesterday.
We'll also keep a close eye on oil. Yesterday oil prices posted the biggest one-day dollar gain ever. Overseas markets have calmed somewhat today so far.
The CNN money team watching out for you, of course. Brianna Keilar is on Capitol Hill this morning where the bailout plan is about to face tough scrutiny. In New York, Ali Velshi.
We'll get to both of you in just a moment. First, though, we want to get some video out to our viewers.
Just a few moments ago, this is President Bush with Pakistani president, Zardari. Let's listen for a moment.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: First of all, I want to express our deepest condolences to the victims of those who died as a result of the terrorist attack in Islamabad. I know that you -- your heart went out to the families of those who suffer and so does the collective heart of the American people, and we stand with you.
PRES. ASIF ALI ZARDARI, PAKISTAN: Thank you. BUSH: Secondly, I got to know you a little bit in an interesting way when I met your children at the Olympics. And it reminded me about the great suffering that they and you have been through with the loss of your beloved wife.
And I thank you very much for staying involved in public service to honor her legacy.
Pakistan is an ally, and I look forward to deepening our relationship. We'll be discussing, of course, how to help spread prosperity. We want our friends around the world to be making a good living.
We want there to be economic prosperity and we can work together, and, of course, we'll be talking about security. And your words have been very strong about Pakistan's sovereign right and sovereign duty to protect your country, and the United States wants to help.
One of the things I've heard here in my stay thus far in New York is from world leaders wondering whether or not the United States has the right plan to deal with this economic crisis.
And I've assured them that the plan laid out by Secretary Paulson is a robust plan to deal with a serious problem. And now they're wondering about our Congress and I've assured them as well that having spoken to the leaders of the Congress from both political parties there is the desire to get something done quickly.
Now, there's a natural give-and-take when it comes to the legislative process. There are good ideas that need to be listened to in order to get a good bill out that will address the situation.
But I'm confident, Mr. President, and as I've told you and other leaders, that there will be a bipartisan bill, that the Republicans and Democrats will come together to get this piece of legislation passed, which is necessary to address the financial situation and provide a rescue plan to make sure that there's some stability in the markets.
Anyway, Mr. President, thank you for coming.
ZARDARI: Thank you. Thank you for your kind words. Thank you for your thoughts. As always, you prove to the world that your heart is in there for us, Pakistanis. We respect your feelings, we respect the American ideals.
And we bring to this the whole concept of your promise to the world of bringing democracy to Pakistan. Democracy has come full circle and it's been the help of all the friends around the world and we are thankful to the world for helping democracy.
And democracy is the answer. We will solve all the problems. We have a situation. We have issues. We've got problems. But we will solve them and we will rise to the occasion. That's what my wife's legacy is all about. That's what democracy is all about, to take difficult decisions and do the right thing for the people of our country and our two great nations. We should come together in this hard time and we will share the burden and responsibility with the world.
BUSH: Thank you, sir.
ZARDARI: Thank you, sir.
(END VIDEO CLIP)
COLLINS: There you have the meeting that happened just a little while ago, President Bush and the president of Pakistan, Zardari, talking about the economy and this bailout plan a little bit with them as well.
Boy, that's something that we are still talking about here, as you would imagine. It seems like, as people learn more and more about it, they have more and more questions. A lot of controversy out there.
Now I want to go ahead and bring in part of our money team. CNN's Ali Velshi standing by to talk more about it.
All right, where do you want to start? You want to talk about the markets and what the reaction may be today?
ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: Well, yes. We're, what, 25 minutes away from the opening of the markets.
VELSHI: And Dow futures are really right on the line. They've been down. They've been up. They're really unclear to what's going to happen because we're unclear as to what is going to happen with this financial rescue package.
We are also about 25 minutes away from hearings at the Senate Banking Committee with Henry Paulson and Ben Bernanke. And we've got word of what they are going to say.
Henry Paulson is going to say that action by Congress is urgently required to stabilize the situation and avert what could be a very serious consequences for our financial markets and our economy. At this juncture in light of the fast moving developments in financial markets it is essential to deal with this crisis at hand.
Crisis is a word we have not seen historically used by Henry Paulson. We've heard it -- heard it in the last week or so.
Now, Heidi, I want to tell you, we are talking about a credit crisis, a credit freeze. People will be hearing that term. What does that mean? A credit freeze is when banks don't lend each other money and companies can't borrow money. Now when we talk about companies borrowing money, we're not talking about fancy borrowing for expansion. We're talking about companies that borrow on a daily basis to make payrolls sometimes, because they've got accounts receivable that have not been paid yet.
Home lenders cannot re-sell mortgages. So mortgage rates go up. Loans get harder to obtain. This is very serious. So while people think it's a Wall Street bailout...
VELSHI: ... it trickles all the way down to main street.
The other thing I want to talk to you about, Heidi, is if these failures, these failures of corporations and this credit freeze were to continue there are 14 million people who are employed directly by the financial services industry or by things having to do with housing.
834,000 residential construction, 500,000 in furniture and home furnishings, more than 1 million in building materials, things like Home Depot and Lowe's, and 11 million people directly affected because they work for some part of the financial services industry.
So even if a tiny portion of those people work for companies that failed and were put out of work, that would be a dramatic increase in the number of jobs that we've lost and the unemployment rate.
So we really do have to think of this seriously. While there are very good and substantial objections to the deal that's on the table -- and Brianna will be able to tell you about that -- we do have to have a deal.
We are very close to a seizure of our credit markets not just in the United States but other parts of the world.
COLLINS: Boy, there's so much to talk about. Someone said to me the other day this is something that your baby, my baby who's 6 months old now...
COLLINS: ... his grandchildren will still be paying for.
VELSHI: That is correct.
COLLINS: Just gives you a little bit of perspective when you're talking about...
COLLINS: ... a chunk of money as...
VELSHI: It's a huge chunk of money.
COLLINS: ... huge as this. Yes. COLLINS: With some luck, with some luck it is going to be treated as an investment that the American taxpayer will actually get the benefit of maybe within 10 years or so. But without that luck, that's a lot of money.
COLLINS: Yes, Ali Velshi, all right, sure do appreciate that. Thank you.
Meanwhile a chunk of your paycheck certainly riding this hour on Capitol Hill. The bailout plan and the people who came up with it facing tough scrutiny from lawmakers.
CNN's Brianna Keilar is there live for us now on Capitol Hill.
So Brianna, if you had a crystal ball, what would they be saying 20 minutes from now?
BRIANNA KEILAR, CNN CORRESPONDENT: You know I really wish that I did know. I mean we know a little bit, of course, of what Secretary Paulson is going to say.
KEILAR: But it's going to be very interesting to hear the questions that he's asked...
KEILAR: ... because no doubt they're going to be tough ones.
But as we wait for that testimony, let me tell you a little bit about what Senate Democrats are talking about, the proposal they're circulating, some additions to the Bush administration plan.
First, it would require that the government get an ownership stake in any corporations that it bails out. It would also have a foreclosure protection for homeowners and it would also limit the pay that executives from these corporations that are bailed out with government money, it would limit their severance packages or their annual salaries.
And something that actually Democrats and Republicans want to see is more oversight into how the Treasury Department would spend these hundreds of millions of dollars.
(BEGIN VIDEO CLIP)
SEN. CHRISTOPHER DODD (D), BANKING COMMITTEE CHAIRMAN: We're going to have a new election in 41 days and a new secretary probably in a matter of five or six week, and you and I can't even begin to guess who that might be.
Turning over a check of this magnitude not only to this secretary but his successor without building in those safeguard, I think, would be the height of irresponsibility.
(END VIDEO CLIP)
KEILAR: And I think I said hundreds of millions of dollars. Obviously, it's hundreds of billions of dollars in this proposal from the Bush administration that the Treasury Department would have the freedom to spend on this bailout.
But the House at this point also looking at its own proposal. And according to House Financial Services Committee chairman Barney Frank, it does resemble that Senate proposal that I just told you about -- Heidi.
COLLINS: All right, well, we will be watching very, very closely. Sure do appreciate that.
Brianna Keilar on Capitol Hill where the action is going to be today. In fact, of course, we will bring you Treasury Secretary Henry Paulson's opening statement live when it happens and that will be coming up, as I said, just about 20 minutes from now bottom of the hour.
Meanwhile, new details coming in right now about that early morning college shooting in Finland. Nine people shot dead at a trade school about 180 miles from Helsinki. Finnish news reports say the gunman shot himself in the head. He is alive but is reportedly in grave condition.
We're also following developments on images posted to YouTube. Finnish police investigating right now if this man seen at a shooting range is the suspected school shooter.
Want to get the very latest now from Rita Strommer. She's with MTV-3 in Helsinki.
Rita, what do you know at this point, particularly about that video and what investigators are looking at?
RITA STROMMER, MTV-3 REPORTER: Well, the investigators, of course, there is this -- this -- people are looking for the similarities to Jokela case which happened less than a year ago in Finland and now it seems that they are suspecting that the gun is -- this killer was using was this same -- similar type of gun that was used in Jokela.
So they are, of course, looking at that. But now it's -- still it's a bit chaotic in Kauhajoki and we don't know much more. But there is some more information coming after one hour.
COLLINS: Is there going to be a press conference? I imagine that's what you're saying that the authorities will be talking a little bit more about what they've learned so far?
STROMMER: Yes, that's going to be in one hour time.
COLLINS: OK. Well, I imagine, Rita, you have possibly been able to talk with some people in the area. This was such a huge shock because of what happened less than one year ago. The people of Finland...
STROMMER: Yes, yes.
COLLINS: ... dealing with this tragedy now.
STROMMER: Yes, yes. This is really, I think, the whole Finland is shocked, because shocked less than a year ago and now it happened again. So this really needs to -- we need to get to the roots of what is going on in our society now.
COLLINS: Well, Rita, let us know what you find out from that press conference, as you said, coming up shortly. We'll be waiting to hear any more details that may develop in all this.
Once again, the latest, nine people killed at a trade school in Finland. We'll stay on top of that story for you.
Meanwhile, some facts about gun ownership in the tiny country of Finland now. A lot of people who live there have guns. In fact, about 2 million guns are owned in the nation of 5 million people. Finland has a strong tradition of hunting.
So does the government have to take action to save the economy? We asked you and now we've got your answer.
ANNOUNCER: CNN NEWSROOM brought to you by...
COLLINS: The economy "ISSUE #1" and it looks like the nation's outlook is getting gloomier.
According to the latest CNN/Opinion Research Corporation Poll, more than 8 in 10 Americans say economic conditions are poor. 19 percent say they're good. The poll also asks, are people worried the economy will get worse if government does not take action? 4 in 10 say they're very worried.
Roughly the same amount say they're somewhat worried, 21 percent say they're not worried at all.
Count the major party presidential nominees as among those who are worried. And they're taking swipes at each other over who is to blame and who could best fix Washington.
Here now Senator Barack Obama and what he said while something in Green Bay, Wisconsin.
(BEGIN VIDEO CLIP)
SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Senator McCain has fought time and time again against the common sense rules of the road that could have prevented this crisis.
His economic plan was written by Phil Gramm, the architect in the United States Senate of the deregulatory steps that helped cause this mess.
(END VIDEO CLIP)
COLLINS: The John McCain camp dismisses Senator Obama's arguing as lacking substance. Listen to what Senator McCain told supporters in Scranton, Pennsylvania.
(BEGIN VIDEO CLIP)
SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: Senator Obama has declined to put forth a plan of his own at a time in crisis when leadership is need, Senator Obama has simply not provided it. And the truth is that we don't have time to wait for Senator Obama's input for our nation to act.
(END VIDEO CLIP)
COLLINS: We're sure to hear more on Friday when the two candidates go head to head in their first debate. A lot of people looking forward to that.
Galveston, Texas, decimated by Hurricane Ike, is working feverishly to restore basic services now. Some people are due home tomorrow. The mayor, though, is in Washington, appealing for more than $2 billion in emergency funding.
In the Houston area, grocery store chains are restocking shelves as fast as they can so returning residents can do the same. But in some cases supplies are limited.
(BEGIN VIDEO CLIP)
SCOTT MCCLELLAND, PRESIDENT, H-E-B GROCERY: So we're going from virtually being in a new store, meaning that there's nothing in it, having to stock up our stores, and get the product flow correct again.
(END VIDEO CLIP)
COLLINS: Some grocery stores are still running on generators, in fact, and source of neighborhoods, as people wait for help getting downed to trees from power lines.
Still a lot of work to be done there.
CNN's Rob Marciano standing by in the weather center now watching all kinds of things particularly the tropics. This thing has no name yet which tells me it's not quite developed but we're watching it closely.
ROB MARCIANO, CNN METEOROLOGIST: Exactly. And if we could keep it without a name that would be good.
Folks down in Puerto Rico and Hispaniola, they're really getting hammered with this what's, in essence, a blob in the satellite picture but it's really raining hard. We've seen the upwards in over two weeks or two feet of rain in some spots of Puerto Rico in less than -- just around 24 hours.
A bit of a flare-up kind of a movement to the south. That's concerning because it was centered north of Hispaniola out of the Caribbean and indications were that, at worst, it would hit maybe New England as something.
Now it's sort of kind of redeveloped to the south. Anyway, National Hurricane Center has got this thing on code red, which means better than 50/50 shot of it becoming a -- tropical depression or tropical storm over the next couple of days. They're going to fly some recon in it today and check it out.
Undeveloped system here, just plain old "L." That could become subtropical, but high and low, we've got winds that'll be cooking for the next couple of days across the mid-Atlantic. That will bring in the waves, that will bring some surf and some -- just blustery conditions.
But look at these numbers. 20s, below 30 degrees, yes, in parts of upstate New York and northern New England from that area of high pressure. So fall certainly a taste of it as we get into now the first full day of fall. Hard to believe that.
Daytime highs today not feeling very fall-like. In Chicago, it'd be 82. But 66 degrees in Boston. It'll be 101 in Phoenix. Not very fall-like there. 76 degrees in San Francisco. That is fall-like. They're actually a little bit warmer in the fall than they are in the summer.
COLLINS: How about that?
COLLINS: It's a meteorological phenomenon.
MARCIANO: It is. One of the fun things that make weather fun.
COLLINS: All right. Well, we're going to check back with you a little bit later on because it's fun.
Rob Marciano, see you in a minute.
MARCIANO: See you.
COLLINS: Meanwhile, want to get to this story for you. A terrifying blast. And now people are too frightened to even speak. Pakistan bombing, ripples reach westerners.
ANNOUNCER: Covering the angles, uncovering the details, see for yourself in the CNN NEWSROOM.
COLLINS: British Airways won't be flying to or from Pakistani any time soon. The airline is suspending flights indefinitely because of this weekend's deadly hotel bombing in Islamabad. Right after the bombing, it halted flights temporarily. And until this week British Airways was flying at least three times a week from London to Islamabad.
More than 50 were killed in the bombing at the Marriott Hotel. More than 250 others wounded.
CNN's Dan Rivers is in Islamabad this morning where we can imagine, Dan, a whole lot of people are on edge.
DAN RIVERS, CNN CORRESPONDENT: That's right, Heidi. It's a very difficult -- increasingly difficult for the expatriates living here to have any sort of normal life especially after this Marriott bombing.
The Marriott Hotel was one of the few places you could go and mix with other ex-pats, have something to eat and socialize. And now that's been taken away from them. And the number of places they can go now is dwindling to just a handful really.
We've been trying to get people to go on camera to talk about how they feel, but no one wants to get that kind of profile. And I think a lot of people who are connected with the embassies and diplomatic missions have been told to keep a low profile.
The U.S. State Department has a travel advisory warning here in Pakistan and now, as you say, British Airways are saying they're suspending flights here indefinitely.
So the sense of almost a siege for the expatriates here just getting worse and worse.
COLLINS: All right, CNN's Dan Rivers giving us the very latest from Islamabad.
Dan, we sure do appreciate that.
Among those people killed in the Pakistan bombing were two Americans, both of them in the military. One has been identified as Major Rodolfo Rodriguez. He was 34 years old. The Air Force officer was assigned to the 86th Construction and Training squadron based in Ramstein, Germany.
Relatives back in El Paso, Texas are struggling to comprehend what happened.
(BEGIN VIDEO CLIP)
ARMANDO JUAREZ, COUSIN OF MAJOR RODRIGUEZ: He will be missed by his family, his brothers, his mom and by everybody. The whole family, he'll be missed. He'll be sorely missed.
(END VIDEO CLIP)
COLLINS: Also killed in the blast the Czech ambassador to Pakistan. He reportedly died trying to help wounded victims get out of the hotel. Our focus now financial crisis. Wall Street watching Washington. We've got our eyes in both places and listening for the opening bell, too.
ANNOUNCER: Live in the CNN NEWSROOM, Heidi Collins.
COLLINS: Well, the opening bell just rang on Wall Street one day after the Dow plunged nearly 400 points.
Our Susan Lisovicz is at the New York Stock Exchange now with a look at how things are shaping up for today.
Futures are up, right, Susan?
SUSAN LISOVICZ CNN CORRESPONDENT: Well, we're expecting -- sorry.
Good morning. And that is a headline because the Dow is coming off six triple digit moves in the last six sessions. In fact, the last four sessions moves of at least 350 points each day and that is the first that has ever happened.
The main event on Wall Street once again coming from the new financial center of the United States, Washington, where Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke are set to testify quite shortly in prepared testimony.
They issued an urgent call for Congress to pay their $700 billion bailout to avoid dire consequences for the economy. Senate Majority Leader Harry Reid says he doesn't think bank rescue issue should be resolved in one day. Let's check the numbers. We are, yes, Heidi, we're to the positive clearly.
COLLINS: I knew it.
LISOVICZ: We're seeing a little bit of green. The Dow is up 11 points, as is the NASDAQ. Very quickly, just want to mention oil prices. We saw the biggest one-day jump in dollar terms ever yesterday. That was a move of $16. The U.S. dollar got crushed partly on the estimated cost of the bailout package. And that pushed commodities higher also because of an expiration of the contract. But the point is we saw a lot action there. Pretty quiet in the oil pits, in electronic trading world.
We're also watching Merrill Lynch Financial. It had its ratings downgraded -- or excuse me, Merrill Lynch cut the rating on General Electric. You know, GE, we think of it. You know, it owns NBC, Universal Studios, it makes light bulbs, jet engines. What a lot of people don't know is that it is one of the biggest financial companies in the U.S. and it contributes about half of the company's profits. So GE was put on the temporary ban on short selling yesterday. And we're watching that stock. Its shares are down 3 percent. Overall, a little bit of a bounce after a big sell-off yesterday.
COLLINS: Yes, that's for sure. All right. We'll be watching closely yet again today. CNN's Susan Lisovicz. Thank you, Susan.
LISOVICZ: You're welcome, Heidi.
COLLINS: It is your money, of course, and this hour as we've been mentioning on Capitol Hill, the $700 billion bailout of the nation's financial system. Want to give you this live shot. They will be talking about it here. Architects, in fact, of the controversial rescue plan are likely to face some pretty tough questions from members of both parties. We will go live once Treasury Secretary Hank Paulson begins speaking. We'll bring his opening statements to you and that should be coming just a few minutes from now.
Drivers in parts of the southeast on a hunt for gas this week. Supply shortages happening because a number of Gulf Coast refineries are still offline after Hurricane Ike. Our iReporters on the scene at Atlanta area gas station. First, Gary describes a welcome sight at Sam's Club.
(BEGIN VIDEO CLIP)
GARY BERMAN, IREPORTER: OK, here at Sam's Club in Marietta, Georgia, tanker truck just got here. All the stations are still closed, but I'm sure there will be lines forming momentarily as people are waiting for gas. There are no gas stations around with gas. So I'm sure it won't be long before cars start lining up here to get some gas.
(END VIDEO CLIP)
COLLINS: And as Gary correctly predicted, cars did indeed line up within minutes of the tanker's arrival. We have these pictures of gas station lines from Michael. Michael tells us he was out on his lunch break when he decided to fuel up. All the stations he saw were out of gas. When he finally found one with gas, there was a 40-car line. The station ran out of gas and so did Michael's car. This happened to a lot of people. So he had to call his boss and get him to pick him up.
Fasten your stories of fuel futility. Send us your images to CNN.com/ireport.
Flattened fields as far as the eye can see. This, the remnants of what Hurricane Ike did. As far north is Illinois and Indiana, in fact. Farmers estimate the strong winds and heavy rains have ruined about 40 percent of their crops. So brace yourself. You're likely going to have to pay more for your grain products.
Rob Marciano standing by yet again in the weather center watching all of this for us, and particularly what's happening in the Tropics. There's lots and lots of rain.
(WEATHER REPORT) COLLINS: All right, very good. If you're wondering what's being shown on the other side of Rob there, I will tell you.
We are getting ready in just a couple of minutes for quite a discussion. At least that's what we're thinking is going to happen today, because you are looking right there at -- everybody getting set up at the Senate Banking Committee. We're going to be hearing from several people, the Treasury Secretary, Henry Paulson, in particular. We'll be getting his opening statements in just a few minutes. Everyone scurrying to get to their seats now. We also hear from Fed Chairman Ben Bernanke. You see him there. Let's go ahead and take a moment. Are we listening? Not quite yet.
That's Chris Dodd, of course. You know, The Senate Banking Committee Chairman. He will give his opening statements right now. And then, I believe we'll also hear from Richard Shelby, Senator Richard Shelby as well, and then we will hear from the Treasury Secretary. That is when we're going to get to this -- actually, I'm wrong. We're going to listen in to Chris Dodd right now.
(BEGIN VIDEO CLIP)
SEN. CHRISTOPHER DODD (D), BANKING COMMITTEE CHAIRMAN: And other financial institutions. We want to welcome our distinguished witnesses here this morning. We thank the Secretary of the Treasury Hank Paulson who is here. The honorable Ben Bernanke, of course, the chairman of the Federal Reserve. Christopher Cox, chairman of the Securities Exchange Commission. And Jim Lockhart, the director of the Federal Housing Finance Agency.
We will going to proceed this morning as I'll make a brief opening statement, turn to my colleague from Alabama, Senator Shelby, former chairman of the committee to make his opening remarks. And given the magnitude of this issue, the seriousness of it, I'm going to ask if my colleagues would like to make any brief opening comments quickly and then we get to our witnesses.
My goal would be that we terminate the hearing sometime around noon if we can. We all recognize the gravity of the situation, the importance of these witnesses to be able to get back and do the work they're doing. So my hope would be that we try and move along here. But again I want to give each of my colleagues a chance to at least say something at the outset of these remarks, but I beseech you to try and keep them brief. All of your full statements will be included in the record and any supporting documents you care to include in the record will be there as well.
So with that admonition in mind, we'll try and make the opening rounds here. About eight minutes apiece. That way we can get -- at least get a decent response and time to ask questions. And I'm not going to gavel down tightly, but try to keep it within that framework if we can. With that, let me share some opening thoughts and then I'll be turning to Senator Shelby.
The committee gathers this morning at an extraordinary and perilous moment in our nation's history. The landscape of our nation's economy has been radically reshaped by the United States government over the course of just a few days in a totally ad hoc manner, it would seem. Companies that have formed the foundation of our financial markets are shrinking and disappearing practically overnight.
Their insatiable appetite for risk in many cases has permeated all sectors of the financial services industry and has spread beyond our shores. It has felled giants like Bear Stearns and Lehman Brothers, brought others to their knees like Merrill Lynch, AIG, Fannie Mae and Freddie Mac, prompted the largest, I might point out thrift failure in our nation's history, IndyMac Bank. And eliminated the final two independent investment banks Morgan Stanley and Goldman Sachs.
These drastic changes have reverberated far beyond the trading floors and board rooms of corporate America. Across our great nation, families are gathering around their kitchen tables each night asking how they will weather the storm and how it will affect them directly. Hundreds of billions of dollars that America has invested in retirement accounts and mutual funds have evaporated. Homeowners are watching the value of their homes plummet. Foreclosures are forcing 9,800 families from their homes each and every day in our country. Families worry about how they will afford groceries and gas and tax -- gasoline. 600,000 Americans have lost their jobs while millions more have watched their paychecks shrink and benefits wither away.
Perhaps the most dangerous consequence, the one that we don't speak enough about in my view, of this economic maelstrom is that our collective confidence in our nation's future has been badly shaken. And that needs to be restored. Less than six months ago, our banking committee gathered in this room to listen to the financial leaders of the Bush administration describe what at the time seemed an inconceivable event, the government's $30 billion intervention in the sale of Bear Stearns to J.P. Morgan.
Now after spending hundreds of billions of dollars, more to prop up, bail out and wind down a multiple of it -- multitude of institutions, the United States government effectively runs, supports or outright owns vast lots of the financial sector. American taxpayers are angry and they demand to know how we arrived at this moment, and more importantly, right now, how the architects of this economic landscape will put us back on a sound financial footing and restore American confidence and optimism.
As I and many members of this committee have argued for the past 17 months, since I became chairman of this committee, the root cause of our economic crisis has been the collapse of our housing market triggered by what Secretary Paulson himself has called bad lending practices. These are practices that no sensible banker should have engaged in and many did not, I might add. Reckless, careless and sometimes unscrupulous actors in the mortgage lending industry that allowed loans to be made that they knew hard-working, law-abiding borrowers would not be able to repay.
Financial regulators acted much too late and much too timidly. They failed to enforce the laws that Congress passed, requiring them to prohibit these bad lending practices. What is tragic and lamentable is that the ensuing calamity was entirely foreseeable and preventable. This was no act of God. It was not like Hurricane Ike. It was created by a combustible combination of private greed and public regulatory neglect. And now we must confront the present crisis.
Barely 72 hours ago Secretary Paulson presented a proposal that he believes and others do as well is urgently needed to protect our economy. This proposal is stunning and unprecedented in scope and lack of detail, I might add. It would allow the secretary of the Treasury to intervene in our economy by purchasing at least $700 billion of toxic assets. It would allow the secretary to hold on to those assets for years and to pay millions of dollars to hand-picked firms to manage those assets.
It would do nothing, in my view, to help a single family save a home, at least not up front. It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of American taxpayers. But at the same time, do nothing to stop the very authors of this calamity to walk away with bonuses and golden parachutes worth millions of dollars. And it would allow the secretary and his successors to act with other in absolute impunity without review by any agency or a court of law.
After reading this proposal, I can only conclude that it is not just our economy that is at risk but our constitution as well. Nevertheless, in our efforts to restore financial security to American families and stability to our markets, this banking committee has a responsibility to examine this proposal carefully and in a timely manner. In my view, any plan to address this crisis must embody three principles.
First, American taxpayers must have some assurance that their hard-earn money is being used correctly and responsibly. Second, we must put in place proper oversight so that the executors of this plan are accountable and their actions are transparent. And finally, we must address the root cause of this crisis by putting an end to the rising number of foreclosures sweeping across our nation.
In the longer term, it is clear that our economic circumstances demand that we rethink, reform and modernize supervision of the financial services industry. Certain basic principles should form the foundation for reform. We need a leader in the White House that will ensure regulators are strong cops on the beat, and do not turn a blind eye to reckless lending practices. We need to remove incentives for regulators to compete against each other for bank and thrift clients by weakening regulations. We need to insure that all institutions pose a risk to our -- that pose a risk to our financial system and taxpayers are carefully and sensibly supervised. And we need to accept the premise that consumer protection and economic growth are not in conflict with one another but inextricably linked.
If we learn nothing else from this, it is that the failure to protect consumers can cause the collapse of our largest financial institutions, the loss of hundreds of thousands of jobs and the draining of hundreds of billions of dollars of wealth from hard- working Americans.
Today, we're very fortunate to be joined as I said at the outset by Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, S.E.C. Chairman Chris Cox and the director of the Federal Housing Finance Agency James Lockhart.
Regardless of how some may feel about the decisions these leaders have made and the impact they've had, we all ought to be able to agree that these four individuals are good, talented, knowledgeable and experienced individuals, who I think want to do the very best for our country.
I agree as well that we need to move and move quickly if we can, but I feel even more strongly that we need to move carefully and prudently and to make sure that what we do is right. I understand speed is important. But I'm far more interested in whether or not we get this right. There is no second act to this. There is no alternative idea out there with resources available if this does not work. So it's critically important that we get it right. And the purpose of this hearing is to discuss whether or not this is the right approach and how we can prove it if we need to.
SEN. RICHARD SHELBY (R), RANKING MEMBER, BANKING COMMITTEE: Thank you, Chairman Dodd. This may be the most important hearing that this committee has conducted, at least in 22 years I've been a member here. Over the last ten years, trillions of dollars were poured into our mortgage finance markets, often with the encouragement of well- intended government programs.
At first, the money backed conventional mortgages with standard down payments and properly verified incomes. Over time, however, the number of home buyers that met conventional loan requirements dwindled rapidly. In order to fuel the upward spiral, mortgage products became more exotic, requiring less of borrowers and involving more risk. Without regard for fiscal prudence and simple economics -- bankers, investment bankers, mortgage brokers, realtors, home builders, mortgage bankers and home buyers created the conditions that helped inflate the housing bubble.
At the same time, Wall Street was developing ever more sophisticated financing vehicles to insure that money continued to flow into the mortgage markets to meet the demand. Mortgages were pooled, packaged and rated, so-called investment grade by the credit rating agencies. They were then sold into a market eager to purchase securities with a wide range of risk and yields. Many purchasers employed massive amounts of leverage, layering risk upon risk in an effort to maximize return. To cover their risk, many of the buyers also bought credit protection from one another, entered into derivatives contracts with nominal values in the hundreds of trillions of dollars. All the while, our financial regulators appeared to be unaware as they sat on the sidelines.
As early as July of 2003 here at the Banking Committee, I asked Chairman Greenspan, then chairman of the Federal Reserve, whether he was concerned about the growing number of loans that borrowers with weak credit histories, and the number of homeowners who spent more than 50 percent of their income on housing.
I also asked him if he was concerned whether an economic downturn could lead to an increase -- lead to increasing delinquencies and foreclosures. Chairman Greenspan at this very committee assured us that increasing home prices provided an equity cushion for mortgagors, and that lending to such borrowers would pose, quote, "a rather small risk to the mortgage market and the economy as a whole." As recently as March of this year, vice chairman of the Federal Reserve Kohn, in testifying before this very committee assured us that the banking system was -- and I'll quote his words, "sound, overall condition and that losses, quote, "should not threaten their viability."
Now, we now know that was not the case. Eventually economic reality caught up with our housing market and housing prices stalled and then began falling. Many who bought homes with unconventional loans found that they were unable to afford the rising payments because home values were dropping, they were unable to refinance and delinquency rates skyrocketed as we all know. Once homeowners began defaulting the value of mortgage-backed securities plummeted. Collateralized debt obligations -- we call them CDOs, that we're comprised of the riskiest mortgage-backed securities became worthless.
As a result, financial institutions holding securitized assets have suffered enormous losses and have been desperately trying to raise new capital. Of the five investment banks regulated at the beginning of the year by the Securities and Exchange Commission under its consolidated supervised entities program, two have failed, one was forced to merge with a bank and the remaining two have now left the program to become bank holding companies.
The recent demise of our investment banks lies in stark contrast to the vote of confidence we received in the banking committee from Chairman Cox in February of this year when he assured us that the CSE program was up to the task. And I will now quote Chairman Cox. The purpose, according to Chairman Cox's words - "the purpose of the CSE program is to monitor far and to act quickly in response to financial or operational weakness in the CSE holding company that might place regulated entities or the broader financial system at risk." The commission -- that is, the S.E.C. speaking of -- seeks to ensure that the holding company has sufficient stand-alone liquidity and financial resources to meet its expected cash outflows in a stress liquidity environment for a period of at least one year. That was earlier this year.
In late 2007, Mr. Erik Sirri, head of Market Regulation for the Securities and Exchange Commission described a consolidated supervision program that had, quote, "demonstrated its effectiveness during the current credit market difficulties." Nothing could be farther from the truth. He likewise assured us that the SEC's consolidated supervision had achieved, quote, "the goal of reducing the likelihood that weakness within the holding company or an unregulated affiliate will place a regulated entity or the broader financial system at risk." Notwithstanding assurances to the contrary, uncertainty about housing prices and the value of mortgage-backed securities have brought our markets to a halt. We're now facing the most serious economic crisis, as Chairman Dodd said, in a generation. So far, the Treasury Departments and the Fed's response to the crisis has been a series of ad hoc measures. First came the bailout of Bear Stearns which we were told was unavoidable. Then came Lehman Brothers which was allowed to fail. And then just last week, the Fed and Treasury organized the bailout of AIG.
I believe the absence of a clear and comprehensive plan for addressing this crisis has injected additional uncertainty into our markets and has undetermined the ability of our markets to tackle this crisis on their own. Unfortunately, the Treasury Department's latest proposal continues, I believe, as ad hoc approach, but on a much grander scale.
The plan contemplates the purchase as we know of up to $700 billion in troubled, toxic, mortgage-related assets from financial institutions that nobody would buy. Treasury expects but is not required to purchase most assets through a type of reverse auction process. There are very few details in this legislation. In fact, Treasury officials admit that they will have to figure out the mechanics as they go along. Rather than establish in a comprehensive workable plan for resolving this crisis, I believe this legislation merely codifies Treasury's ad hoc approach. My hope is that this hearing will give us an opportunity to explore the parameters of the plan and why Secretary Paulson believes it will work.
I also hope to hear why the plan does nothing to address the root cause of the crisis, the rising default rate on mortgages. While Wall Street banks get to sell their bad investments to the Treasury Department. Homeowners will still be saddled with mortgages that they cannot afford. My record is very clear on taxpayer funded bailout. I have long opposed government bailouts for individuals and corporate America alike. As a young congressman, I voted against the loan guarantees for Chrysler I believe in '79 or '80.
However, if the government is going to get into the bailout business, shouldn't we also be focusing our resources on average Americans, the taxpayers, rather than sophisticated and well- compensated Wall Street bankers? The Treasury's plan has little for those outside of the financial industry. It is aimed at rescue in the same financial institutions that created this crisis with the sloppy underwriting and reckless disregard for the risk they we're creating taking or passing on to others.
Wall Street bet that the government would rescue them if they got into trouble. It appears that bet may be the one that pays off. Once again, what troubles me most is that we have been given no credible assurances that this plan will work. We could very well spend $700 billion or a trillion and not resolve the crisis. Before I sign off on something of this magnitude, I would want to know that we have exhausted all reasonable alternatives. But I don't believe we can do that in a weekend. Unfortunately, the incredibly accelerated process for considering this bill means that Congress does not have time to determine if there are better alternatives or any alternatives to the treasure's plan. I am very concerned that the express need to pass something now may prevent us from devising a plan that may actually work. Without question, our markets and financial institutions need serious attention. I do not believe, however, that we can solve this crisis by spending a massive amount of money on bad securities. It is time for this administration and the Congress to do the work of devising as quickly as possible a comprehensive and workable plan for resolving this crisis before we waste $700 to $1 billion of taxpayer's money.
DODD: Thank you, Senator Shelby. Senator Johnson?
SEN. TIM JOHNSON (D), SOUTH DAKOTA: Thank you, Senator Dodd. This administration has asked Congress for the authority to buy up to $700 billion worth of residential and commercial mortgage-related assets from troubled Wall Street, financial institutions. They are asking that this package have no strings. In South Dakota we believe --
(END VIDEO CLIP)
COLLINS: Quickly, we want to let you know as we listen in to what's happening on Capitol Hill regarding the $700 billion bailout plan, testimony there -- actually I should say opening statements by several different members, we are looking at President Bush who has made his way over to the U.N., obviously in New York.
Coming up, just as a reminder, at 10:30 he will be addressing the U.N. We of course are going to try and bring that to you just as soon as it happens. Let's go back now to Capitol Hill. Actually, let's take a commercial break first. We'll be back right here in the CNN NEWSROOM in just a moment.
COLLINS: Following the financial crisis on Wall Street. New concerns about credit markets. On Capitol Hill, tough questions about a bank's bailout. And at the U.N., we are just a little while away from President Bush's address to the general assembly. It's Tuesday, September 23rd, I'm Heidi Collins. You are in the CNN NEWSROOM.
As you know, the stakes are huge. The price tag staggering, $700 billion of your money. This hour on Capitol Hill, the bailout of the nation's financial system. Live pictures for you now. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke facing tough questions from lawmakers. We, of course, are likely to hear some pretty alarming answers. We've been listening in to some of the opening statements. That process still going on. Just want to let you know what you are looking at. And we have not heard the opening statement quite yet from the Treasury secretary.
Also this hour, watching Wall Street. Raw nerves after yesterday's big loss. A look here now at the big board to the positive, about 68 points. We'll keep our eye on that, of course. Also keeping a close eye on oil. Yesterday oil prices posted the biggest one day dollar gain ever. So is that an anomaly or not? Well, today, the oil markets are a bit calmer so far.
So oil price, where are they headed now. Where could they be headed? CNN's Christine Romans is in New York for us on this side of the story.
I guess that's kind of the question, Christine. Wasn't that sort of an anomaly, a freakish thing that happened?
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: It was freakish, but boy it hurt and it was real. There are technical reasons why it happened yesterday. But a huge one-day rally in the price of crude oil. And I won't bore you with the details of the futures markets and going off the board as they say for futures contracts. But there were people who thought that oil was going to continue to go lower. And as that contract expired, they found themselves having to buy oil. So, you saw a huge run-up in oil yesterday. Now, remember, oil is off substantially. And gas prices actually from July, the peak.
So we've had a little bit of relief lately, but you know, we've been consumed by this bailout and what it means and will it help the economy and what will it do? Take a look at oil prices, that spike that we've seen - yesterday you can see it there. They had come off pretty good. Last year oil was $81 a barrel. I mean just consider that. $81 a barrel.
And gas today, $3.72 a gallon. A year ago, it was $2.80 a gallon. So, Heidi, even as we're talking about relief ahead for the financial markets, perhaps relief ahead in 2009 for the economy, keep in mind that people right now are still hurting because of higher gas prices and higher oil prices. And they're still substantially higher than they were a year ago. So that's something to keep in mind as we head into the winter when we know that heating your house is going to cost a whole heck of a let more than it did last year. This is still the day-to-day pressure on the American family's bottom line. Heidi.
COLLINS: Yes. No question about that. Everybody hoping for a nice mild winter if that's at all possible. CNN's Christine Romans, thank you.