1

REMARKS OF CHAIRMAN CHRISTOPHER J. DODD

US CHAMBER OF COMMERCE 3RD ANNUAL CAPITAL MARKETS SUMMIT

A NEW ERA OF RESPONSIBILITY IN FINANCIAL SERVICES

CHAMBER HEADQUARTERS

WEDNESDAY, MARCH 11, 2009

Thank you, Tom, for that kind introduction, and for your leadership these last dozen years. It’s always a pleasure to be with the Chamber of Commerce – the voice of business in communities across the country and a powerful force for entrepreneurship and for a vital and prosperous economy.

These may be tough times, but with your leadership the Chamber has been a key partner for delivering important solutions to the American people.

We’ve worked together on everything from litigation reform to Y2K preparation to terrorism risk insurance in the wake of 9/11.

And in recent months, we’ve shared a mutual commitment to modernizing America’s infrastructure with a National Infrastructure Bank to make our economy more competitive.

We meet at an extraordinary moment. A moment when America’s economy, from Main Street to Wall Street, is withering – when the traditional confidence and optimism of the American people is at record lows, and credit—the lifeblood of our economy—is frozen.

This didn’t happen because of too much regulation – but because of ineffective regulation.

And as a result, trust has been broken – and to rebuild that confidence in our economy, it is trust that must be restored.

Today, at the Chamber’s 3rd Annual Summit, we discuss the future of America’s capital markets – and to be sure, with half of all households invested in some way in securities, the path we choose for this growing segment of our financial system in the coming months will determine not only the futures of traders on Wall Street but also the futures of families and businesses across America.

And certainly, both are deeply enmeshed with one another and riddled with uncertainty.

That is why it is so important that we get this right.

Of all the numbers you see right now—the Dow Jones, the S&P, and so forth—when we talk about this crisis, there’s one number that puts all this in perspective: five.

2

That’s the number of investment banks the SEC regulated under the consolidated supervised entity program at the beginning of the credit crisis in 2008:

Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley.

For decades—and for some, more than a century—these names were synonymous with America’s financial strength, having survived World Wars and the Great Depression.

Inside of six months, each institution was sold, converted to a bank holding company or failed outright. All five. Every single one.

But the bloodletting on Wall Street pales compared to the pain felt on Main Street.

By the time we put our children to sleep tonight, if current trajectories continue, another 20,000 jobs may have been lost across the country.

I had a conversation yesterday with George David, the former CEO of United Technologies – a solid, sound company and the largest, private employer in my state. He’s watched UTC decline in growth, resulting in their need to lay off 11,000 people worldwide – 5 percent of its workforce.

At the same time, another 10,000 homeowners will open their doors tomorrow to find foreclosure notices on their doorsteps.

Representing a state like Connecticut, I am confronted with both ends of this financial crisis every day – from layoffs throughout the financial sector, which employs 1 out of every 8 workers in my state, to subprime mortgage foreclosures that have devastated cities from Bridgeport to Hartford.

A Broken RelationshipToday, I want to speak about the trust relationship between the entrepreneur and the

customer – how I believe the financial meltdown that has shaken our economy is rooted, fundamentally, in the breakdown of that relationship and what needs to be done in this Congress to repair that breach.

And a breach is precisely what we are talking about here.

I’m talking about abusive and predatory practices that too many market actors engaged in or endorsed.

I’m talking about “securitization gone wild,” in which financial products grew so outrageously complex that it wasn’t only the investors who didn’t know what they were buying – just as often, the salesmen had no idea what they were selling.

And because so many of these products were built on mortgages that never should have been offered or accepted, securitization did not simply “re-allocate” risk.

3

It spread risk throughout our financial system, passing it on to others like a high-stakes game of “hot potato,” scalding everyone who touched it.

Now, to be clear, this failure to protect consumers and investors is by no means exclusive to financial services, or an indictment of every actor in this story.

Yet for too long, some were willing to ignore a basic precept of business operation—fair treatment of the customer—to bolster their bottom line.

Nowhere was that failure starker or more catastrophic for our economy than in our housing market – where lenders, brokers and banks offered or financed an array of unsuitable mortgage products without regard for the borrower’s ability to repay.

For too long, many in the industry focused solely on large profits, and ignored the major risks that accompanied them. They were willing to gamble with not only their own futures, but those of their customers, who were encouraged to take on more and more risk.

Like professional athletes on steroids, too many actors took enormous, inexcusable risks for short-term gains, not only putting their teams in jeopardy, but ultimately, the entire sport.

And the result is clear, with unemployment now the highest in 16 years, 8 million homes in danger of foreclosure, and some of our largest financial institutions either in ruins or at risk.

President Obama has said the time has come for a “new era of responsibility.” And today, I want to speak very frankly about what that must mean for financial services in the 21st century.

We must rebuild our financial architecture from the bottom up. Because if we have learned one thing from this crisis, it’s that putting unwarranted risk onto consumers puts the entire system at risk.

I want to talk about what it will require to begin rebuilding that trust relationship between business and the consumer – holding our financial institutions to a standard of ethical and professional conduct worthy of the greatest nation in the world while providing their customers with the safeguards and information they need to make responsible choices.

If we are going to encourage the vitality, innovation and creativity that has been the source of genius in our system for centuries, we must have a regulatory architecture, from mortgage lending to credit cards, that recognizes when we all have skin in the game, we all take the consequences of our actions a little more seriously.

It’s time we recognize the role consumers and investors play in our economic growth – that strong, sensible protections to increase transparency and responsibility up and down the supply chain don’t punish innovation.

4

They provide the confidence—the subject of today’s gathering—to spark innovation and put us all on a far sounder, more stable footing.

Managing Risk to the ConsumerThe current financial crisis “illustrates the nexus between consumer protection regulation

and safety and soundness regulation. Consumer protection and safety and soundness are intertwined.”

Those aren’t my words – they’re Steve Bartlett’s of the Financial Services Roundtable, who came before my Committee last week.

He went on to say “The first line of defense for protecting the interests of all consumers of financial products and services” is smart regulation and supervision of financial institutions.

I couldn’t agree more. In recent months, in the context of regulatory modernization debates you’ve heard a lot about “systemic risk.” Making sure that we appropriately weigh the overarching hazards to our financial system will be extremely important.

But we didn’t get to where we are today simply because we weren’t looking at the big picture – because we weren’t “managing the flight patterns.” The truth is, we had a problem long before these planes took off.

We got into this mess because we weren’t screening the bags – no documentation adjustable rate mortgages, teaser-rate credit cards.

One-by-one, these products were loaded onto the consumers of our financial services system, and many of these products were explosive, literally and figuratively.

As one trader said of one notorious subprime lender, money was being moved out the door to Wall Street so fast, with so few questions asked, these loans were not merely risky – they were, in fact, “built to self-destruct.”

So, when we talk about the need to manage systemic risk and consumer risk, what we’re really talking about is the difference between air traffic control and ground control.

For a healthy system, you need both.

And to press that metaphor even further, right now you have what amount to whole planes full of sick passengers – with as many as 8 million homes in danger of foreclosure over the next several years and global financial markets tied up in complex derivatives.

The question my committee and the Administration is trying to answer is how you land those planes and get the passengers off safely.

5

That’s one reason I’m so supportive of President Obama’s Homeowner Affordability and Stability Plan, which will help up to 7 to 9 million homeowners, including allowing bankruptcy judges to modify mortgages for homes in danger of foreclosure.

The plan represents a sharp change in direction from the previous Administration’s approach. And with home prices down 18 percent with studies showing foreclosures reduce neighborhood property values by $5,000, it comes not a moment too soon.

The Building Blocks of Consumer and Investor ProtectionBut we can’t wait to begin building a strong foundation of consumer and investor

protections.

Securitization has been a remarkable innovation and is largely responsible for securities now representing 80 percent of all of the United States’ financial assets.

But absent incentives to make sure these risky loans paid off down the road, the relationship between the consumer and their financial institutions was, in effect, severed and elements of the system collapsed.

Going forward, we need to ensure that the creators of financial products have as much “skin in the game” when they package these products as customers do when they buy them.

It’s a concept that has worked for nearly thirty years with the Superfund law, so that instead of passing on risk, everyone shares responsibility.

Transparency is equally as fundamental.

In the run up to the housing crisis, unbeknownst to the borrower, brokers would often pocket fees from the lender—so called “yield spread premiums”—for steering their client into risky mortgages.

And so we shouldn’t be surprised that 65% of all subprime borrowers qualified for more stable prime loans, according to the Wall Street Journal. Most probably didn’t know they had that option.

Credit cards. A quarter century ago, a typical credit-card contract was about a page in length – today, it’s thirty times as long and usually incomprehensible.

Fifty lines of text explaining how interest rates will be calculated before concluding “We reserve the right to change the terms at any time for any reason” is not disclosure – it’s obfuscation.

And it’s not just regular folks who have been misled. For proof, you need look no further than the hundreds of billions of dollars in auction-rate securities that were misleadingly marketed as cash equivalents to countless sophisticated investors and city pension funds across the country who were left with nothing when the auctions failed and the securities could not be redeemed.

6

Or the Madoff scandal in which $50 billion invested by charities, pension funds and mostly sophisticated investors evaporated because regulators had no idea a massive fraud was occurring right under their noses – this despite the fact that he apparently hadn’t completed a single trade in thirteen years.

Thirteen years!

Whether we are homebuyers, city managers, or entrepreneurs, we can only make responsible decisions if we have all the necessary information.

It’s time to insist on far more disclosure and transparency –where the focus isn’t the quantity, but the quality.

I wanted to read you a quote about this issue that I found quite fascinating. It reads, “My goal is simply to give [the customer] the information I would wish them to supply me if our positions were reversed. To succeed, I don’t need to be Shakespeare – I must, though, have a sincere desire to inform.”

That isn’t Ralph Nader talking – it’s the “Oracle of Omaha,” Warren Buffett, and he’s referring to the annual reports he sends out to Berkshire Hathaway shareholders every year.

He doesn’t blind them with LIBOR rates and other terms most people can’t understand.

He writes as if he’s writing to his sisters Doris and Bertie – who he describes as intelligent, but by no means financial whizzes.

Now, Warren’s sisters may not have been terribly happy with the letter they received this year. But those disclosures play a critical role in the trust relationship he’s built up with his shareholders over the years.

One of the most successful businessmen in America understands something pretty basic:

Transparency is not a luxury for any successful business model – it’s essential.

If your customers understand you, they’re more likely to buy what you’re selling. And if you do right by them the first time, they’re more likely to come back a second.

Responsibility is a two-way street.

And if you agree that the consumers and investors must be protected, the first question you have to ask is who should be charged with that authority.

We cannot afford to focus solely on the soundness of the largest institutions with the hope that it trickles down to the consumer.

7

In 1994, Congress gave the Fed authority to ban abusive home mortgages – and it failed miserably.

So the question is, should we be piling more on the Fed’s plate?

Or should we be putting it on Weight Watchers?

My colleagues Dick Durbin and Chuck Schumer have suggested we set up an entity modeled on the Consumer Product Safety Commission, which protects the public from unsafe products used in the home, at school, and for recreation.

No one suggests that the buyer is to blame for a toaster that catches on fire or a toy for your child that is contaminated with lead. Should it be any different for the borrower who takes out a mortgage or signs up for a credit card?

I think it is a very fair question to ask.

Complex financial transactions can be far more dangerous than a faulty toaster.

We’re talking about huge financial decisions – often the most significant of a family’s life, on which they may stake their life savings.

A New EraJust as we didn’t get into this crisis overnight, it will take time to get out of it.

But we can begin laying the groundwork for this new era of responsibility in financial services today. That’s why I’ve been holding a series of hearings to modernize our regulatory architecture.

Some have suggested that the current crisis proves that the time has come for businesses that engaged in abuses to get their just desserts.

But while those responsible must be held accountable, the truth is many businesses played by the rules, and we’re all going to have to work together to fix these problems.

I assure you today that we will take extraordinary measures to ensure we do not unduly cramp innovation and creativity.

But for me the need for strong protections for ordinary Americans is not negotiable.

It is the key to restoring confidence in our capital markets and, as such, must be the bedrock foundation upon which we build our new regulatory architecture.

8

Not because it’s smart politics, but because it’s smart business.

If we do that—and I believe we can—we can rebuild confidence in the securities markets and in our economy, from Kaycee, Wyoming to New London, Connecticut to Manhattan.

The truth is, there have probably only been a dozen years in American history where the future of the republic has been seriously in question – when Congress deserted George Washington at Valley Forge during the winter of 1777, a few years during the Civil War, and a handful during the Great Depression.

I believe we meet at just one of those moments.

When people talk about this period in history, as they surely will, you and I want them to talk about how, together, we turned this challenge into an opportunity for America.

That in a broken time, what President Obama rightly described as “the winter of our hardship,” we came together. That is our challenge today.

Working in partnership, I have no doubt we will rise to meet it. Thank you.

9