Thursday, September 25, 2008

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

Mr. President, in the next 48 to 96 hours, Members of this Senate and Members of the House of Representatives will be called upon to make what may very well be the most important decision any of us have been asked to make, certainly domestically.

There have been a lot of reckless comments, a lot of sobering comments, a lot of speeches made on this floor, a lot of accusations made regarding the recovery or rescue supposedly by Secretary Paulson. But it is very important for Members of this body to, first of all, make sure that facts are reported accurately and, second of all, that we give ourselves a chance to get this action right because there will be no second chance.

Yesterday, two Senators--Senator Coburn from Oklahoma and Senator Gregg from New Hampshire--made very eloquent, accurate, and sobering speeches about the gravity of the economic situation we face but also correcting some of the accusations that have been made by some about the recovery that has been proposed.

This morning, I was heartened to see two people in the media make comments early on the morning news, which gave me hope that we are finally coming to a point where people are going to report facts rather than fantasy.

Ali Velshi, who is the economic reporter on CNN, in fielding a question from a listener who blamed the rescue we are talking about to be a rescue of Wall Street, pointed out to that person that this is not a rescue of Wall Street. We are giving a chance to provide liquidity to banks, savings and loans, credit unions, and financial institutions of the United States of America, not Wall Street.

And Boone Pickens, who was interviewed because ostensibly he has lost millions of dollars of his multibillion assets in recent days, when asked about the consequences of us doing nothing, said very simply: ``You must trust Mr. Paulson.''

I trust him. We must do what is right. Those are sobering comments. I thought what I would do for a little bit is set the record straight, or at least accurately, of some of the things that have gone on, some of the things that are going on, and what the Paulson proposal can do when it is perfected to help us in a very difficult period of time.

As I said on the floor of this Senate on many occasions, the villain in this situation is very essentially Wall Street's investment banking community and Moody's and Standard & Poor's, the rating agencies. They created subprime securities. Moody's and Standard & Poor's wrote them as investment grade. They sold them around the world. When those high-risk, poorly qualified, high-yielding loans were made and began to be defaulted on, the securities started losing their value, and they lost them at a rapid rate. They became known as subprime securities or, as some have called them, toxic assets.

The problem that faces the country today is the uncertainty of the value of those assets has plummeted their value to virtually zero. There is no market. The American people yesterday, in looking for a place to invest their money, were willing to take zero interest to buy Treasury bills, meaning they were looking for a place to park their money.

We are not in a time where there is any confidence in the investment community and everybody is worried and concerned. Secretary Paulson's proposal is to spend up to--and I would use the word ``invest'' up to rather than ``spend''--$700 billion to purchase from financial institutions these mortgage-backed securities at a discounted price established by the Secretary.

Assuming for a second the discounted price is 50 percent, that $700 billion would actually take off the shelves $1.4 trillion in mortgage-backed security assets held currently by financial institutions--a significant amount of money. The minute the Treasury begins to buy these entities and these securities, there are going to be people coming back to the market to buy them as well.

Think about this, Mr. President: If you buy a security at 50 cents on the dollar, then you are reducing what the company paid for it--their investment--by 50 percent. If the default rate on mortgages--on subprime loans--in the country is 12 or 15 percent, which in some cases it is, that is only 85 percent of 100, which means there is a 35-percent spread on those mortgages that are paid to maturity.

So with the strength of the country being able to buy those securities, hold those securities to maturity, there very possibly is a significant margin for the Treasury of the United States. The amount of the investment made by this country will never be $700 billion. It will be somewhere between $700 billion and whatever we recover from those securities upon their maturity, which could well be $500 billion, $600 billion, $700 billion, even maybe possibly a margin above that.

So this is not an investment to save Wall Street. This is an investment to provide liquidity to the lending institutions that service my citizens in Georgia and yours in Ohio and my colleague's in Oklahoma, the people who now are struggling to be able to get credit for their small business or for their car loan or for a mortgage.

I think it is also important to recognize that some of the actions taken by the Fed and the Treasury in the weeks leading up to this decision, which have been referred to also as Wall Street bailouts, have been, in some cases, misreported. The Bear Stearns investment of $29 billion helped a transaction to be made that caused Bear Stearns to lose 90 percent of its value. That is not a bailout. AIG is paying the taxpayers of the United States 8 1/2 percent on a loan we made to AIG to allow it to liquidate itself--a loan, by the way, that the U.S. Treasury will make money on.

The proposal being made on those two is off the balance sheet for the United States. The $700 billion proposal is on the balance sheet, and it will create a liability, and during its maximum time it will raise the debt. But as the securities are held to maturity, as they are sold at a price between the discount they are purchased for and the value they ultimately are redeemed for, the Treasury will have a reduced and diminished liability.

I am not here to sell the Secretary's proposal, and I am anxious to wait for the meeting this afternoon to see the final details, but I am saying that words are important and loose lips at a time such as this in our country are very dangerous. For us to castigate a recommendation to save our economy--which, in fact, is a rescue and not a bailout--is wrong, and it is wrong for elected officials, such as myself or anyone else, to take fast-and-loose facts and apply them to a situation that is the gravest we have faced in this country in a long time.

So I take the word of Boone Pickens to place confidence in those we have entrusted to represent us--in this case, Secretary Paulson. I take solace in the words of the President last night and the sobering comments of Senator JUDD GREGG on the floor of this Senate when he explained accurately and correctly the financial effects of doing nothing in this situation.

Mr. President, we have 48 to 96 hours to make a decision. Let's make it on the facts. Let's make it in the best interests of the American people. Let's make it in the best interests of Main Street because, after all, those are the people we serve--the ones who go to our banks, our savings and loans, who run our small businesses, and who are our next-door neighbors. They are the Americans we represent. They are the Georgians I represent. When I make a decision this weekend, it will be in their best interest, their children's, and their lives.