|1:04 PM EDT||
Michael Capuano, D-MA 7th
Mr. CAPUANO. I thank the gentleman for yielding.
Mr. Speaker, I am one of those three people who voted ``no.'' I do not expect to win here today on the floor. And I want to be real clear: I do not oppose consolidated loan obligations. I support them. They are an important financial tool.
But that is not what this bill does. This bill allows risky CLOs. Most CLOs would be permitted pursuant to the Volcker Rule. If they only contained loans, they are okay. Any bank can own them to any degree.
So let's not think that somehow the Volcker Rule has killed CLOs. They have simply said they have to be what they say they are, collateralized loan obligations, not collateralized loan obligations put together with all kinds of other junk. Simple. Straightforward.
There is not going to be any fire sale. The regulators have already listened to the congressional comments, of which I was one, asking for a delay to allow the existing CLOs that do not meet the regulation to be held for 2 more years. There will be no fire sale. There has been no fire sale.
As we speak, the sale of CLOs is at a historic high. The Volcker Rule has not killed the market. They are back to almost the same levels they were at in 2007 before the crash.
Let me be clear. I agree that CLOs did not, on their own, participate in the '08 problems and that they do have a record of success. But prior to 2008, most people would have said the same thing about collateralized debt obligations. By the way, at some point, somebody has to explain to me the difference between debt and loans, but that is a different issue.
Collateralized loan obligations are important. They are a good, thoughtful way to provide capital. By the way, most of them are used for leveraged buyouts, as the example we just heard, for leveraged buyouts. Now, you can argue whether leveraged buyouts to the extent they happen are good or bad, but that is what they are mostly used for.
I also want to be real clear. Very, very, very few small, community banks have any CLOs. Over 70 percent of the collateralized loan obligations, both the ones that are allowed and disallowed, are owned by three banks. Over 70 percent are owned by three of the largest banks in the world. And by the way, almost all of those CLOs would be permitted to those three large banks.
So what are we solving here? We are pretending to save some great investment tool. It is not under threat. We are pretending that no problems could ever happen. Those are the same discussions we had in '05, '06, '07, and '08. All the risk that was being assumed comfortably and successfully prior to 2008 was perfectly fine. Those regulators are just killing America--until the crash happened, from which we are still recovering.
All we want to do is take a look at some of the riskier aspects of this financial aspect and simply say, whoa, it doesn't mean everybody can't do it. It simply means regulated banks can't do it. Private investors could still do every one of these things. Why would
regulated banks be prohibited from doing only the most risky CLOs? Because they are protected by taxpayer dollars, because they are protected by the FDIC, and because we, as a society, have said that bank stability is important to the American economy.
So let's be clear: CLOs are not being killed. They are being limited in a very small way only to target the most risky CLOs. Banks and others have already adjusted to those limitations by reinvigorating the CLO market in a way that has been and would be allowed under the existing rule. But yet we have a problem.
We have a crisis that we have to solve. A handful of people will not be allowed to risk my mother's investment. That is what we are crying about. Well, I have heard that before, and it didn't turn out too well in '08. A little limitation is good for the American system. And, by the way, it is historically the system as it has been for a thousand years.
I just want to end with a quote by Paul Volcker himself. I presume Paul Volcker knows more about the economy and the markets than most people in Congress. But maybe not. Maybe some people are smarter than him. This is what he said about this bill:
This constant effort to get around the rule limiting banks' investment in hedge funds on behalf of a few institutions who apparently want room to resume the financing practices that got us into trouble in the past really should end.
CLOs--straightforward and plain vanilla--are a good and important investment tool for the American economy. They should and will be allowed under the current rules. There should and will be time for people to move slowly [Page: H3260]
and thoughtfully without a fire sale out of the handful of risky investments that are there, and even those people who love those risky investments will be able to do it still, just not through a subsidized bank.
I know that I have not convinced anyone. I know that I am going to lose this vote on the floor, and I respect it. And I hope to God that my concerns are wrong and overblown. I hope that in a few years I come back and I apologize to the gentleman for my concerns, that they were overblown and unjustified. Because America will be better off if you are right. But if you are wrong, a handful of people will make a lot of money, but the rest of us will be dramatically and deeply hurt once again.