Metavid

Video archive of the US Congress

Senate Proceeding on May 3rd, 2010 :: 0:34:10 to 0:52:05
Total video length: 4 hours 32 minutes Stream Tools: Stream Overview | Edit Time

Note: MetaVid video transcripts may contain inaccuracies, help us build a more perfect archive

Download OptionsEmbed Video

Views:127 Duration: 0:17:55 Discussion

Previous speech: Next speech:

Jon Kyl

0:34:10 to 0:52:05( Edit History Discussion )
Speech By: Jon Kyl

Jon Kyl

0:34:12 to 0:34:34( Edit History Discussion )

Jon Kyl: quorum call: the presiding officer: the senator from arizona. mr. kyl: mr. president, i ask further consent that proceedings under the quorum call be dispensed with. the presiding officer: without objection. mr. kyl: thank you. let me address the amendment that we're going to take up, first, i gather, on the so-called regulatory reform bill, the boxer amendment. the boxer amendment, as i

Jon Kyl

0:34:35 to 0:34:55( Edit History Discussion )

Jon Kyl: understand it, is a declarative statement that taxpayers will not be responsible for any wall street bailouts. my understanding is that is it not a provision that would enforce itself or would in any way legislation, but it certainly expresses the sentiment that i

Jon Kyl

0:34:56 to 0:35:17( Edit History Discussion )

Jon Kyl: assume every senator would share. the problem, just the fact that we're concerned that taxpayers will be responsible for bailouts, but the fact that bailouts will exist in any event and how that might affect people who have invested in or lent to an institution, what shorty it would give to the united states

Jon Kyl

0:35:18 to 0:35:38( Edit History Discussion )

Jon Kyl: government an whether or not such a provision would apply as well to perhaps the fannie and freddie, the two government-sponsored enterprises that do hold the of the mortgages that are unsound or on less than strong

Jon Kyl

0:35:39 to 0:35:59( Edit History Discussion )

Jon Kyl: financial footing, put that way. so the q whether taxpayer dollars will be used. though this amendment while expressing sentiment doesn't operatively prevent that. but, just a much, whether wall street will still be bailed out, but in a different way.

Jon Kyl

0:36:00 to 0:36:20( Edit History Discussion )

Jon Kyl: will the appropriate policies and in place to prevent this be amended if all we want to do is ensure that failing institutions are liquidated, we could have a bankruptcy regime. many people believe that's an

Jon Kyl

0:36:21 to 0:36:41( Edit History Discussion )

Jon Kyl: appropriate regime. as it tradition of everyone knows exactly how it works and where you stand and ordinarily has been successful in liquidating firms that cannot pay their obligations. after the lehman bankruptcy and contingent effects surrounding that, some

Jon Kyl

0:36:42 to 0:37:02( Edit History Discussion )

Jon Kyl: believed that bankruptcies were not suited to these kinds of large institutions. it may be that traditional bankruptcy may have to be modified in order to apply to the liquidation of a financial institution that large. one of the things, though, that we need to do in figuring out exactly what the right process should be is making sure that

Jon Kyl

0:37:03 to 0:37:23( Edit History Discussion )

Jon Kyl: creditors aren't receiving special treatment. for example, the way they did when the auto companies were bailed out and some other were bailed out. otherwise, we'll be increasing moral hazard rather than decreasing it, which is part of the exercise here. a government compelled fund that takes money from successful firms an transfers it to a

Jon Kyl

0:37:24 to 0:37:45( Edit History Discussion )

Jon Kyl: failed firm, for example, regardless of how you seek to justify it as an assessment recruitment or a tax or whatever you might call it is still a bailout. and the question is, therefore, ultimately who will pay for it, but also how does it scramble the obligations and the prioritization of obligations

Jon Kyl

0:37:46 to 0:38:06( Edit History Discussion )

Jon Kyl: compared to what bankruptcy would do? the people who bear the cost of propping up a failed firm, for example, have nothing to do with the fact that that firm failed with the poor decisions of that firm. so if instead of the american people, you're going to make other entities in its area, for example, a bank begin so you're going to make the

Jon Kyl

0:38:07 to 0:38:27( Edit History Discussion )

Jon Kyl: other banks prop that bank up, how is that fair to the shareholders or investors in the bank that has to do the up or the group of banks? they didn't have anything to do with the poor the management of the failed firm. whereas you can argue that the henners to the failed firming --

Jon Kyl

0:38:28 to 0:38:48( Edit History Discussion )

Jon Kyl: lenders who to the failed firm and managers of the failed firm all had something to do with the direction that the failed firm took a because of that the bankruptcy laws have set out priorities aso who ends up bearing the risk of the failure of that firm. the lenders and the investors in failing companies loseontrol

Jon Kyl

0:38:49 to 0:39:10( Edit History Discussion )

Jon Kyl: of the money they invested. and whatever resources are channeled by court into productive endeavors or to pay the people who have lent the money to the firm. now, that's exactly the opposite of a government-sponsored fund does, in transferring the

Jon Kyl

0:39:11 to 0:39:32( Edit History Discussion )

Jon Kyl: resources from a productive to unproductive purpose. here if it's not the taxpayers who fund it fellow financial institutions, again, people who had nothing to do with the fai entity bei fortunately that's process which can address the process of failing firms that does move resources into more productive areas and at the same time holds

Jon Kyl

0:39:33 to 0:39:53( Edit History Discussion )

Jon Kyl: those directly responsible for the mistakes there are d this and it can te different forms, one of them is speed bankruptcy. in other words, a form of bankruptcy which recognizes that in certain institutions you're going to need to quickly take a hold of

Jon Kyl

0:39:54 to 0:40:15( Edit History Discussion )

Jon Kyl: prevent contagion in the shore up the financial situation so they cannot affect others and therefore cause a larger failure that relates to that particular company. a fir becomes insolvent when its liabilities, which could be payments to bondholders, it could be payments to suppliers,

Jon Kyl

0:40:16 to 0:40:36( Edit History Discussion )

Jon Kyl: it could worth more than the associates that the company has. assets such as capital, accounts, the intangibles, even things like reputation. over the last couple of years we've seen a collapse or near collapse of several well-known firms.

Jon Kyl

0:40:37 to 0:40:57( Edit History Discussion )

Jon Kyl: for example, the g.m. and chrysler company, bear tense, a.i.g., and fannie mae and freddie mac which are projected to be dependable on government assistance for the forseable future and ultimately by that we mean the taxpayers of this country. in the examples tha i cited above the government response

Jon Kyl

0:40:58 to 0:41:20( Edit History Discussion )

Jon Kyl: was in effect to failed firm with taxpayer funds. the so-called speed bankruptcy and iterations of the idea would instead conve longer term debt of the company into equity. and there are a lot of benefits, as you can see, to such a proposal. for example, a

Jon Kyl

0:41:21 to 0:41:41( Edit History Discussion )

Jon Kyl: firm that is in fincial trouble, a lengthy process could create the kind of uncertainty that would otherwise undermine the a continue once it exits from from the resolution process and could affect for others its area. a speed bankruptcy, on the other hand, would permit the firm to

Jon Kyl

0:41:42 to 0:42:03( Edit History Discussion )

Jon Kyl: remain in running. there's a paper that's been written on this i thi interesting. garrett jones at the george mason the university actually writes that this kind of proposal would of something of value so they're not eirely wiped up and retain the

Jon Kyl

0:42:04 to 0:42:26( Edit History Discussion )

Jon Kyl: their losses if the equity shares they receive in lieu of their bonds remain of value here's what he writes in the recent paper, friday's bondholders become monday's new shareholders and the banking conglomerate can continue to borrow and lend much as before without little possibility short-run crisis.

Jon Kyl

0:42:27 to 0:42:48( Edit History Discussion )

Jon Kyl: it's a little bit like debt or possession financing in a bankruptcy but it matters where you get the financing, in this case creditors of one kind become creditors of a different kind, trading bond for equity. investors directly tied to the troubled firm bear the financial costs of the restructuring of the firm.

Jon Kyl

0:42:49 to 0:43:09( Edit History Discussion )

Jon Kyl: and, third, since many of the bonds are publicly trade and, therefore liquid, the process would be transparent and the reason the process could occur so quickly is because of that conversion. and, fourth, a debt to equity leaves deposits untouched.

Jon Kyl

0:43:10 to 0:43:30( Edit History Discussion )

Jon Kyl: now, what steps would operationally be necessary to well, first an insolvent firm would be able to convert its long-term debt specified in advance and restock in order to recapitalize and strengthen the institution. under such proposals regulators would need to declare that the institution is at risk.

Jon Kyl

0:43:31 to 0:43:54( Edit History Discussion )

Jon Kyl: second the firm would need to breach a certain specified capital level. once this occurred, the restructured firm would emerge healthier with less debt and more equity without any taxpayer money being used or without any money being used from other banks or their financial institutions.

Jon Kyl

0:43:57 to 0:44:17( Edit History Discussion )

Jon Kyl: for exale, persian square capital management released a proposal to convert $75,000 of fannie mae's $55 million senior unsecured debt into equity. for every dollar ofenior unsecured debt the bondholder would receive 90 cents in new

Jon Kyl

0:44:18 to 0:44:38( Edit History Discussion )

Jon Kyl: senior unsecured debt and a 10-cent in value of new common as a result the new fannie could take advantage of its new capital. it has a dollar to expand its underwriting. it -- it can utilize increased cash flow losses and in the fut conditions improve, to reduce

Jon Kyl

0:44:39 to 0:45:00( Edit History Discussion )

Jon Kyl: its balance sheet by gradually selling some of the mortgage associates on its books. john b. taylor writes wall street journal," in an article "how to avoid a bailout bill", you do not prevent bailouts by giving the government more power to intervene in a discretionary manner. you

Jon Kyl

0:45:01 to 0:45:21( Edit History Discussion )

Jon Kyl: preventing firms to go through bankruptcy without causing disruption to the financial system and to the economy. end of quote. mr. presi here is the summary of what i'm saying here. most of us here do not want to see taxpayer bai firms which have made poor management decisions,

Jon Kyl

0:45:22 to 0:45:43( Edit History Discussion )

Jon Kyl: invested mistakes and for which taxpayers should not be responsible. that's the genesis of the boxer amendment. but for the boxer amendment to really be effective, two things would have to be done, and on first it would have to be operational. it would actually have to be enforceable. as i understand it, as i said,

Jon Kyl

0:45:44 to 0:46:08( Edit History Discussion )

Jon Kyl: the boxer amendment is oratory language. the taxpayer funds should not be used for bailouts. something we can all agree to. but we also know around here that a sense of the senate resolution is nothing mor than at, a sense of the senate. it needs to have operational enforcement language for it to have meaning. it's my understanding that this language does not. but secondly, the real question is whether or not instead of

Jon Kyl

0:46:09 to 0:46:29( Edit History Discussion )

Jon Kyl: bailout where government -- i don't want to use the word bureaucrats here, but officials presenting the united states government in one of two or three different entities could on their own with very little direction in congressional legislation determine that a firm now needs to be taken over or bailed out, and without very

Jon Kyl

0:46:30 to 0:46:50( Edit History Discussion )

Jon Kyl: direct them as to how to do it or the circumstances under which it's t unwind that firm, infusing perhaps taxpayer money that's later recouped or perhaps funding from some kind of a tax or assessment on other banks, for example, to infuse capital

Jon Kyl

0:46:51 to 0:47:11( Edit History Discussion )

Jon Kyl: into the entity to keep it from going out of business. this is a way in which bankruptcy would orderly work except that bankruptcy works according to a set of rules and traditions that have been developed over a couple of hundred years that everybody is familiar with and which people were -- which people took account before they made

Jon Kyl

0:47:12 to 0:47:32( Edit History Discussion )

Jon Kyl: investments in or lent money to a company in the first place. if they became they knew would be and the order of priority in a bankruptcy. if they lent money, it's secured, they know they have one level of security. if it's unsecured, they know they are pretty much going to be at the bottom of the totem pole when it comes to distributing the assets of the bankrupt

Jon Kyl

0:47:33 to 0:47:54( Edit History Discussion )

Jon Kyl: company. their investments or lending is based upon or predicated upon their understanding of these well-known rules and moreover, they understand that a judge will be in charge, that he will put people under oath and cause them to testify so you know exactly what the assets are would take to keep the company running, or in the event that it

Jon Kyl

0:47:55 to 0:48:17( Edit History Discussion )

Jon Kyl: does have to be liquidated, how the funds would be disbursed. a trustee is appointed and a trustee has a fiduciary obligation und the rul the court to management the business to either come back out of bankruptcy i chapter 11 or if it's a liquidation to ensure that the rules of the bankruptcy and the rules of the judge are carried out. now, that's the way a bankruptcy works.

Jon Kyl

0:48:18 to 0:48:39( Edit History Discussion )

Jon Kyl: it is a proper way to unwind o to liquidate most businesses in this country. and i think those who say well, these financial institutions are different, we need a different set of rules first have an obligation to tell us why, what is it that's different about these entities that the bankruptcy laws sply don't work. what would cause them to have to

Jon Kyl

0:48:40 to 0:49:00( Edit History Discussion )

Jon Kyl: have a different set of treatment? and if there are some things -- and i can think of a couple of things that distinguish them, then how could we modify the bankruptcy rules in effect to take into account those differences? one think is the fact that a large financial firm could easily have an effect on others who are invested in or who they invest

Jon Kyl

0:49:01 to 0:49:22( Edit History Discussion )

Jon Kyl: in and therefore in effect cause a domino effect in markets, and that that could happen very quickly. and therefore, when you see signs of a problem, you need to be able to move very quickly. that's where this idea of this speed bankruptcy comes from. but it doesn't take a government

Jon Kyl

0:49:23 to 0:49:43( Edit History Discussion )

Jon Kyl: bureaucrat or a government needs to be done and how to do it. it can be done within the context of bankruptcy today or with relatively modest modifications in code, we could make those changes. the fear that a lot of us have is that people who are not elected, who are not constrained by any particular power, except

Jon Kyl

0:49:44 to 0:50:04( Edit History Discussion )

Jon Kyl: the limitations the congress imposes upon them and in this bill those limitations are very, very general, that those people could make decisions to put somebody into this process to decide who gets paid how much without any reference necessarily, for examp bankruptcy code, who gets privileged andho isn't and

Jon Kyl

0:50:05 to 0:50:25( Edit History Discussion )

Jon Kyl: with whose money. if you look at the example of the two auto companies, you find that labor unions were substantially privileged to the exclusion of other investors. a lot of people thought this was wrong. it was contrary to the way it would have evolved had they been in bankruptcy court. so what most folks would like to see is a process that you can

Jon Kyl

0:50:26 to 0:50:46( Edit History Discussion )

Jon Kyl: count on, that you have rules of law that ha over time in the bankruptcy law that not some unspecified, unclear process that's run by some agency of the united states government. and forward to say that taxpayers should not be on the hook for

Jon Kyl

0:50:47 to 0:51:07( Edit History Discussion )

Jon Kyl: this, it's not enough to say that. a, because that's not operational or because there are other ways to do this that represent a closer adherence to the rule of law, that would be better at promoting investment or lending in the first instance because of the clarity and the predictability of the way the situation would be treated in

Jon Kyl

0:51:08 to 0:51:28( Edit History Discussion )

Jon Kyl: the event of a bankruptcy, and finally, that people who are not responsible management decisions would not have a liability when that company is then liquidated or comes out of a bkruptcy operating again. rather, the people who had been involved in the company in the first instance would bear that obligation. this is just one idea. it's one of many that have been

Jon Kyl

0:51:29 to 0:51:49( Edit History Discussion )

Jon Kyl: posited here as to the specific provisions in the legislation rg and it's my -- and it's my hope that as we continue debe about this portion of the bill we could come together on a set of principles that would adhere more closely to the rule established in the bankruptcy code to the concept that those responsible should be the ones

Jon Kyl

0:51:50 to 0:52:04( Edit History Discussion )

Jon Kyl: who end up bearing the burden, and that in any event, as it appears that most of us would agree, that taxpayers should not be responsible for the decisions that were made by management of

Personal tools

MetaVid is a non-profit project of UC Santa Cruz and the Sunlight Foundation. Learn more About MetaVid

The C-SPAN logo and other servicemarks that may be found in video content are the property of their respective trademark holders. None of these trademark holders are affiliated with Metavid