Thank you, Mr. Chairman. I want to thank our witnesses very much and our committee for at least providing us the opportunity to talk with one another across party lines.
My two main questions are and I'm going to make a statement after the questions so you can think about the questions six banks in our nation now control two-thirds of our banking system. How do we restore real competition for mortgage credit? And number two, how do we restore prudent mortgage lending and origination that recapitalizes local and regional community financial institutions, not distant speculative lenders?
Some, as you've heard this morning, want to blame Fannie Mae and Freddie Mac for the financial meltdown, and I'd like to put their role in perspective as I see it. They were doing fine until deregulation of private financial markets occurred during the 1990s. And what we've experienced now in this past decade is the government has become the dumpster for the mistakes of the private sector and the costs are enormous.
High-risk behavior in America's housing market began during the early 1990s, when financial deregulation pushed by some here in Congress allowed the private financial sector to turn formerly prudent mortgage loans into bonds and then securitize them into the international market in a manner that bore no relationship to true value nor the local real estate market.
I would like to place in the record an article from this week's New York Times, "The Good Banker," by Joe Nocera. There are many good bankers left out there. They need to come before our committee and help us figure out a better future for this country.
I remember, in the early 1990s, when the largest commercial banks and later Wall Street speculative investment houses came up here and applauded the demise of the staid thrift industry and its conservative mortgage lending practices as the big Wall Street banks hungrily sought after a globalized market and after the housing market that they had not been into as a new national profit center.
I recall when the sign outside the door of the former Banking and Housing and Urban Affairs Committee was taken down and that committee renamed the Financial Services Committee.
That signaled a new era of abandonment of strict practices in mortgage loan origination and standards of prudent lending that had regulated private-sector mortgage behavior for most of the 20th Century following the Great Depression.
In fact, during the 1990s, the securities jurisdiction of the Energy and Commerce Committee was merged under that Financial Services Committee as Congress passed, without my support, the the Leach- Bliley Act.
And when the Glass-Steagall Act that had separated banking and speculation since 1933 was wiped off the books in 1998 under that Leach-Bliley, the speculators were unleashed full-bore.
I have a bill, H.R. 1489, that would restore important Glass- Steagall provisions. Fannie Mae and Freddie Mac were not the quarterbacks in this game of market manipulation. Wall Street was. But Fannie and Freddie were very important wide receivers in this high-stakes, big-bank hyperventilation of the mortgage market.
The private-sector big banks and speculative houses soon discovered that home mortgages were pretty sleepy instruments with a 30-year pay-back time horizon that didn't yield the quick, seven-year pay-back of commercial loans or speculative prospects. So the big banks and their minions in the origination servicing and rating industries figured out how to inflate their returns. I'd like to place on the record a few pages from the book published in 1996 by former chairman and CEO of Fannie Mae, James Johnson, entitled "Showing America a New Way Home."
In it, he clearly describes what the private sector was up to, transforming the way America financed homebuying, the mortgage system, from an industry that is almost exclusively dependent on depositors to one that is investor-based. He lauds the fact that capital to finance home ownership will be "virtually unlimited" I'm quoting "unlike the former savings and loan, and that international capital markets will now assume the risk and are superbly well-equipped to evaluate performance as they invest in securities backed by mortgages.
"Fannie Mae and Freddie Mac were wide receivers in this transformation, but the quarterback sat on Wall Street and on the board of the Federal Reserve."
Looking back, it is hard to understand how he could have such unguarded faith in an untested system of the deregulated global private financial marketplace for housing finance. But that is what happened. And Fannie Mae and Freddie Mac then adopted high-risk practices, too, becoming key agents to move this mortgage paper into international tranches.
For our nation to dig itself out of the worst housing depression since the Great Depression, we must go back and unwind what happened and restored prudent lending standards again.
I have a bill, the Fannie Mae and Freddie Mac Investigative Commission Act. It is a straightforward piece of legislation that creates an independent commission to investigate and analyze what policies, practices and board decisions on risk management that were made at Fannie Mae and Freddie Mac that led to the enterprise's financial instability and the subsequent conservatorship of the two entities.
This commission would build on the work of the Financial Crisis Inquiry Commission as a basis for, again, disciplining the financial practices that led our nation to such a precipice.
I have many, many documents to enter into the record. And, Mr. Chairman, I will wait until the second round for them to address the two questions I've asked about competition in our restoring competition in our banking system again and recapitalizing local markets that are capital-starved at this moment.