FACT SHEET | October 2, 2008

Senate Democrats are Committed to Change: The Bush-McCain Legacy of Deregulation and Laissez-Faire, Free-Market Economics is Crippling our Economy

"I am a deregulator. I believe in deregulation."

(Senator John McCain, July 13, 2003)


"Government should be...market-based."

(President George W. Bush, July 10, 2002)


"I worked my entire career trying to remove regulations, and that's one of the major things I did. ...I'm a free market nut, and I believe in the market."

(Former House Republican Leader Tom DeLay, October 1, 2008)



For years, Democrats have warned that Conservative Republicans' hostility toward regulation and oversight would seriously harm the economy. During the last several years, and most clearly in the last few weeks, our worst fears have been realized. After nearly a decade of Republican-controlled government in Washington, Americans have seen their dreams of economic security and homeownership gambled away by deregulation, incompetent fiscal policies, misplaced governmental priorities, lack of Congressional oversight, and un-checked greed on Wall Street and in the financial markets.


As Senate Democrats help our nation recover from the Bush-McCain "perfect storm" of economic and regulatory failures, we call upon our Republican colleagues to acknowledge the harm that Bush-McCain economic philosophies have caused and work with us to stabilize the economy and restore the American Dream for middle-class families. It is clearer than ever that the American people need more Senators who are committed to change.


A Shameful Legacy of Regulatory Failures with Devastating Consequences for American Homeowners and Taxpayers


The Bush Administration failed to regulate the mortgage market, which has led to a global financial crisis and threatened the economic security of American families. Years of abuse by the mortgage lending industry and deregulation by Republicans have resulted in a crash of the subprime mortgage market and led to the worst American financial disaster since the Great Depression. Home lenders are filing thousands of new foreclosures each day;[1]over the next two years, more than twomillion Americans may lose their homes (see below for state by state figures)[2]andnearly 45 million of their neighbors will see theirproperty values decline as houses foreclose around them.[3]As a result, towns and cities across America are experiencing business closings, increased crime, and an eroded tax base due to home abandonments, and Americans are losing their jobs, retirement, and health care due to a slowing economy. Moreover, the credit crisis that has followed is making it difficult, if not impossible, for many Americans to access loans of any kind -- home loans, car loans, student loans, or even credit cards, which have traditionally helped families through tough economic times. And Wall Street firms, while pressed for more and more deregulation, are now standing on the brink of a total collapse, which is having a very negative impact on the broader economy.


Due to their own fiscal incompetence and mismanagement, in recent months and days, the Bush Administration has spent billions of taxpayer dollars rescuing Fannie Mae, Freddie Mac and several of Wall Streets biggest firms in an effort to keep the economy afloat. And most recently, the Administration has asked the Democratic-led Congress to authorize the spending of $700 billion to buy back bad mortgages from Wall Street and keep the nation from sliding into a deeper economic depression. Congressional Democrats agree that something needs to be done and have worked with the White House and Congressional Republicans to come up with a solution that stabilizes the economy, protects taxpayers, punishes wrongdoers, and prevents additional unnecessary foreclosures. Nevertheless, even as we move forward, we must remember the origins of this mortgage and economic crisis.


The home mortgage market gone wild. At the peak of the nation's housing boom, subprime mortgages helped millions of Americans, most with limited or blemished credit,achieve the American dream of homeownership. These loans also helped millions more homeowners, many of whom were older Americans with good credit, but on fixed incomes, refinance their homes. Unfortunately, while some lenders and brokers offered these mortgages responsibly, many others engaged in predatory or irresponsible lending practices, using aggressive and manipulative tactics to steer vulnerable borrowers into "exploding" adjustable-rate mortgages (ARMs) they could never afford, trapping them in high-cost loans with costly pre-payment penalties. Abuse by the lending industry was especially acute in communities of color, where borrowers were offered adjustable-rate subprime loans even though they could have qualified for more stable fixed-rate and/or prime loans.


Due to higher interest rates, subprime loans were expected to, and for a time did, yield higher returns; lenders had no difficulty generating interest from Wall Street investors. Although investigations are ongoing into their motivations, credit rating agencies -- usually known for their conservative estimates -- began giving these subprime mortgage-backed securities AAA ratings, which spurred investment. Overwhelming Wall Street interest (or greed) created a perverse incentive structure in which lenders were paid more for selling risky, and then riskier, loan products to as many unsophisticated borrowers as possible.[4]To meet the demand, lending standards plummeted with some loans requiring "no money down," "no proof of employment," or "no documentation of income."[5]As a result, between 2003 and 2006, the use of adjustable-rate subprime loans increased by 250 percent, from eight percent of all mortgage originations to 28 percent, with more than 90 percent of these loans having exploding ARMsand more than 70 percent having pre-payment penalties.[6]


And while this was happening, few, if any, in the Bush Administration, the Republican Congress, the regulatory industry, or on Wall Street seriously considered what would happened if these mortgages failed. Fewer still cared about what would happen to American families if they were unable to meet mortgage payments on their primary residences. And no one seemed to understand the full ramification of mass subprime loan defaults and home foreclosures on the entire American economy.


It turns out what the Bush Administration did not know, hurt America. As early as 2003, reports of Chicago foreclosure rates signaled that neighborhoods with high numbers of subprime loans were also experiencing high rates of foreclosure.[7]It was clear that these homeowners did not have sufficient resources to pay their mortgages in the first place.[8]As the housing boom turned to bust in 2005 the problem became more widespread and began to accelerate. Homeowners who banked on being able to refinance their ARMs loan at a lower, more affordable fixed-rate before it adjusted higher were unable to do so. Nearly 70 percent of subprime ARMs have adjustments from seven percent to 12 percent, and typical monthly payment increases of 30 to 50 percent in the third year.[9]As home values dropped, many homeowners found they were unable to sell. Stagnant wages, increased living costs, and rising interest rates made it difficult for even most homeowners to stay afloat financially. People simply could not make their mortgage payments, and more and more, homeowners were being pushed toward foreclosure.


Bush-McCain Republicans were asleep at the wheel.While this storm brewed in the mortgage markets, the Bush Administration failed to regulate lending practices and speculation by Wall Street investors, failed to see the warning signs of an unstable mortgage market, and, in some cases, actually encouraged lenders to offer, and borrowers to accept, risky ARMs over traditional, fixed-rate mortgages. Bush Republicans also continued to advocate for further deregulation.


The Bush Administration received warnings signs. Beginning in 2000, the late, Democratic-appointed Federal Reserve Governor Ned Gramlichwarned that predatory lending would "jeopardize the twin American dreams of owning a home and building wealth." (Governor Gramlich, 1/18/02) In 2006, Moody's Economy.com cautioned that "problems in the mortgage-backed market would spill over into the rest of the U.S. fixed income and stock markets... The turmoil in the U.S. financial markets would immediately reverberate around the world, engendering a global financial event." (Moody's Economy.com, October 2006) The Federal Reserve staff also noted a prolonged loosening of standards for mortgages starting in late 2003. (Federal Reserve staff briefing for Senate Banking Committee staff, 3/20/07)


The Bush Administration continued its ideological push for deregulation. "There was a lack of regulatory oversight during the Bush administration...that's one of the reasons we are in the mess that we are in...many bad mortgage loans and other loans were made in part because regulators were not empowered and were not playing their proper role." (Mark Zandi, NPR, 9/16/08) "Regulators and lawmakers allowed financial companies to police themselves while dismissing the need for rules to restrain the number of bad housing loans or the amount of debt Wall Street firms could take on. Banks and brokerage firms invented new, complex products - many of them exempt from regulatory controls - to support growing numbers of risky mortgages." (The Dallas Morning News, 9/21/08)


The former Federal Reserve Chairmanencouragedrisky mortgages -- and did not "get it" until it was too late. In 2004, former Federal Reserve Chairman Alan Greenspan, an avid champion of free markets and less regulation, continued to encourage higher-risk mortgages. "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage...the traditional fixed-rate mortgage may be an expensive method of financing a home." (Federal Reserve Chairman Greenspan, 2/23/04) "Asked why he did not speak out, if he knew these practices were going on or even suspected that there was something illegal or shady, Greenspan admits, 'While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late. I didn't really get it until very late in 2005 and 2006.'" (CBS News, 9/13/07)


President Bush and Administration officials denied that the subprime mortgage problem would spread to the rest of the economy. President Bush stated that the economy is stable: "[I]t looks we're headed for a soft landing." (White House morning press briefing, 8/9/07) Secretary Paulson played down the subprime market turmoil by claiming that the economic fallout will "be painful to some lenders, but it is largely contained." (MarketWatch, 3/13/07) Former Bush economic advisor and Bush-appointed Federal Reserve Chairman Ben Bernanke said, "[T]roubles in the subprime sector on the broader housing market will likely be limited." (Forbes, 5/17/07)


Some Administration officials are now recognizing the role they played in the financial crisis and the need for increased regulation. "The chairman of the Securities and Exchange Commission, a longtime proponent of deregulation, acknowledged on Friday that failures in a voluntary supervision program for Wall Street's largest investment banks had contributed to the global financial crisis, and he abruptly shut the program down... Facing the worst financial crisis since the Great Depression, Mr. Cox has begun in recent weeks to call for greater government involvement in the markets. He has imposed restraints on short-sellers, market speculators who borrow stock and then sell it in the hope that it will decline. On Tuesday, he asked Congress for the first time to regulate the market for credit-default swaps, financial instruments that insure the holder against losses from declines in bonds and other types of securities." (New York Times, 9/26/08)


Senator McCain has a long history of advocating for deregulation, including the financial markets. "In early 1995, after Republicans had taken control of Congress, [Senator] McCain promoted a moratorium on federal regulations of all kinds. He was quoted as saying that excessive regulations were 'destroying the American family, the American dream' and voters 'want these regulations stopped.' The moratorium measure was unsuccessful. 'I'm always for less regulation,' he told the Wall Street Journal last March, 'but I am aware of the view that there is a need for government oversight' in situations like the subprime lending crisis, the problem that has cascaded through Wall Street this year. He concluded, 'but I am fundamentally a deregulator.' Later that month, he gave a speech on the housing crisis in which he called for less regulation, saying, 'Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.'" (New York Times, 9/20/08)


Bush-McCain free-market economic policies have had grave consequences for American homeowners.American is experiencing the worst mortgage crisis, and now the worst economic crisis, in 75 years. The number of homes facing foreclosure more than doubled in the first quarter of 2008 from a year earlier.[10]Foreclosure filings were reported on nearly 740,000 properties during the second quarter of 2008, a 121 percent increase from the second quarter of 2007. In August 2008, troubles continued with foreclosures being filed on 303,879 properties, a 12 percent since July and a 27 percent increase from August 2007. According to the RealtyTrac report, "one in every 416 U.S. households received a foreclosure filing" in August.[11]The number of American homeowners who are standing on economic "thin ice" is also troubling. The number of subprime loans that were 30 days late stood at 18.67 percent in the second quarter of 2008 and the number of seriously delinquent loans (90 days late) increased to 17.85 percent from the first quarter.[12]Prime loan holders are also increasing experiences increased rates of delinquency, serious delinquency, and foreclosure.


Even homeowners with strong credit, who are in safe, fixed-rate loans, and who are paying their bills on time are suffering from the reduction in property values and home equity wealth associated with foreclosures in their neighborhood. A study of home prices in the Chicago Metropolitan area estimated that a single home foreclosure lowered the value of homes located within a one-eighth mile area by at least .9 (1.44 percent in lower-income neighborhoods), which equaled approximately $3,000 in that market. In other markets that decrease may be closer to $5,000.[13]It is estimated that 40.6 million homes will face devaluation due to surrounding foreclosures, representing a total drop, according to one estimate, in house values and tax base of $202 billion.[14]


The resulting credit crisis in the mortgage markets is making safe, affordable mortgages less available for aspiring homeowners or borrowers in need of a refinancing alternative. A Federal Reserve study found that approximately 55 percent of U.S. banks have increased standards for prime loans, and 85 percent of banks have increased standards for nontraditional loans.[15]As a result, the American dream of owning a home is becoming less and less of a reality for nearly every American.


Democrats improved the Bush Administration's stabilization plan. In an effort to stave off economic disaster, Democrats have worked with the White House and Congressional Republicans to pass an economic bailout and reform measure that would help both Wall Street and Main Street. Though action must be taken, the Bush rescue plan comes at great cost to the American tax payer, and represents the final verdict on failed Bush-McCain economic policies. The stabilization plan would:


Reinvestin the financial markets by providing the Treasury Department graduated authorization to purchase troubled mortgages, mortgage-backed securities, and pensions;


Reimbursethe American taxpayer, beginning with a share in the profits earned by participating companies; and


Reformfinancial institutions by strengthening oversight, increasing transparency, and limiting executive compensation.


While there are no "quick-fixes," as we move forward and look toward the future, the American people can count on Democrats to work in a bipartisan manner to strengthen the economy and make the American dream of homeownership more affordable for this and future generations.


A Shameful Legacy of Failed Economic Policies that Have Caused Huge Budget and Trade Deficits and Wasted Billions of

Taxpayer Dollars


Bush-McCain economic policies have resulted in record deficits.President Bush inherited a unified budget surplus of $236 billion from President Clinton, the largest surplus in American history.[16]Budget surpluses were expected to continue for at least another ten years when President Bush took office in January 2001. By 2002, however, the unified federal budget had returned to a deficit of $160 billion and has since reached historic highs.[17]Last year, the budget deficit was $163 billion, or 1.2 percent of GDP.[18]And this year, the President has requested more than a trillion dollars in monies to help the nation recover from his Administration's own fiscal incompetence.


Simply put, President Bush is the most fiscally-irresponsible American president ever, having presided over the largest explosion of debt in our nation's history. Every year since taking office, President Bush requested that Congress increase the statutory debt limit, resulting in a $3.2 trillion, or 57 percent, increase.[19]At the end of 2007, the federal debt was $9.0 trillion or nearly $30,000 for every man, woman, and child in America.[20]The public debt currently stands at $9.4 trillion.[21]In order to finance record budget deficits, the United States has had to borrow at unprecedented rates from foreign countries. As of September 2007, the United States had accumulated $1.4 trillion more in debt to foreigners than this country had accumulated in its first 224 years.[22]By contrast, during the last three years of the Clinton Administration, the United States paid off more than $200 billion in debt to foreign countries.[23]Record federal deficits and debt create record interest costs for Americans. In 2006, interest costs on the federal debt amounted to $405.9 billion and this figure will grow to $645 billion by 2017.[24]


In May 2007, the Democratic-led Congress began the process of reversing six years of fiscal mismanagement and irresponsible budget cuts by passing S. Con. Res. 21, the Budget Resolution for Fiscal Year 2008. Under the Bush Resolution, the federal budget would be balanced within five years and, by 2012, there would be a surplus of more than $40 billion, all without raising a penny of new taxes. In June 2008, Senate Democrats took another step toward restoring the federal budget to surplus by approving the conference agreement on S. Con. Res. 70, the Fiscal Year 2009 Budget Resolution, on a party-line, 48-45 vote. The resolution outlined the proposed federal budget for next year, as well as proposed budget levels for Fiscal Years 2010 through 2013. This $3 trillion measure reflects the Democratic commitment to strengthening the economy by creating jobs, cutting middle-class taxes, and making key investments in energy, education, and infrastructure - all while maintaining fiscal discipline and without raising a penny in new taxes.


Bush Republican policies doubled the trade deficit. In 2007, the annual U.S. trade deficit was $708.5 billion - twice the size of the trade deficit in 2000, the year before President Bush took office.[25]At a time when our enormous trade deficit is undermining U.S. competitiveness, the Bush Administration has failed to enforce our trade agreements abroad and our domestic fair trade laws here at home. The Clinton Administration filed significantly more WTO cases during its tenure than the Bush Administration - an average of 11 cases per year to open foreign markets during the Clinton Administration, versus an average of less than three per year during the Bush Administration. And the Bush Administration has completely failed to enforce two important U.S. fair trade laws - Section 301 and Section 421 of the Trade Act of 1974. The Administration received several Section 301 petitions against unfair and unjustifiable trade practices in foreign countries, including petitions seeking investigations of Chinese currency manipulation and worker rights abuses, but it declined to initiate an investigation in each case. And the Administration has similarly failed to enforce the special safeguard to ensure that U.S. industries are not injured by surges in imports from China's non-market economy (the "Section 421 safeguard"). Although the independent International Trade Commission found that temporary, targeted relief for certain U.S. industries was warranted in four separate Section 421 cases, the President refused to provide relief to the U.S. firms and workers in each case.


The Bush Administration wasted billions of dollars by failing to conduct meaningful oversight over contractors in Iraq.During the last eight years, the use of defense contracting has skyrocketed to record levels, nearly doubling from 2000 to 2006. Since 2004,Pentagon auditors have uncovered more than $10 billion in questionable and unsupported costs in Iraq contracting (more than one in six dollars audited), including $2.7 billion from Halliburton alone. While it has entrusted billions to private contractors, the Bush Administration has not put in place the oversight mechanisms necessary to ensure that taxpayer funds are used properly and effectively. The result has been massive waste, fraud, and abuse of taxpayer dollars that could have been better used to support troops overseas, veterans, or domestic priorities here at home.


In the 110thCongress, under new Democratic leadership, Congress reinstituted strong oversight of government contractors:


•Democrats established a Special Inspector for Afghanistan Reconstruction (SIGAR) to strengthen oversight of U.S. reconstruction efforts in Afghanistan. (Department of Defense Authorization, 2008, P.L. 110-181)


•Democrats created a Commission on Wartime Contracting to study and investigate federal agency contracting for reconstruction and make recommendations for improving the process in the future. One important recommendation was to require private security contractors operating on the battlefield in Iraq and Afghanistan to comply with DoDrules and regulations on the use of force, as well as orders and directives from combatant commanders regarding force protection, security, health, safety and interaction with local nationals. (Department of Defense Authorization, 2008, P.L. 110-181)


•Democrats strengthened whistleblower protections for contractor employees who blow the whistle on waste, fraud, and abuse. (Department of Defense Authorization, 2008, P.L. 110-181)


•Democrats helped to establish ethics standards to prevent personal conflicts of interest of contractor employees who perform acquisition functions on behalf of the DoD. (Department of Defense Authorization, 2009, S. 3001)


•Democrats required the DoDto establish a database of information regarding the integrity and contract performance of contractors, and ensure that this information is available to acquisition officials making key contract decisions. (Department of Defense Authorization, 2009, S. 3001)


The Bush Administration has failed to close corporate tax loopholes.Fundamental fairness calls for every American to pay his or her fair share of taxes. Unfortunately, the American people are being shortchanged each year by companies who engage in illegal tax shelters and off-shore tax havens. The most egregious example of this sits in the Cayman Islands, where one building is said to hold more than 12,000 companies. Before getting caught, KBR, one of the nation's top defense contractors listed this building as their home, even though they did not have an office there or a phone number there. It is clear that these companies are not doing business in the Cayman Islands; these are "shell corporations" established outside the reach of the U.S. government so that big corporations can avoid showing their profits here and, thus, avoid paying taxes.[26]Nevertheless, the Bush Administration has done little to close this and other loopholes in the tax code that allow big business to cheat the American taxpayer. What is worse, in addition to taxpayers, these companies are often cheating their state-side employees, who are then forced to pay their own payroll taxes.


In an effort ensure taxpayers fairness, earlier this year, Congress passed legislation to close the off-shore tax loophole for federal contractors (like KBR) with respect to payroll taxes.The President signed this bill into law on June 17, 2008 (P.L. 110-245).


A Shameful Legacy of Regulatory Failures with Devastating Consequences for American Families


The Bush Administration failed to protect American consumers from dangerous products and our children from toxic toys.Multiple, high-profile recalls in the summer and fall of 2007, most notably the deadly Magnetix toy, lead-based toys, and pet-food recalls, unmasked major failures by the Bush Administration to protect American consumers and their families from dangerous products. Years of funding, staffing, resource, enforcement deficiencies at the Consumer Product Safety Commission (CPSC) had crippled the agency's ability to fulfill its mission "of protecting consumers and families from products that pose a fire, electrical, chemical, or mechanical hazard or can injure children."


The CPSC estimates that products under its jurisdiction are related to 28,200 deaths and 33.6 million injuries each year, all of which cost the American people $800 billion annually, and the number, scope, and technological complexity of consumer products has increased. When Democrats reinstituted aggressive oversight in 2007, however, Congress found that the Commission was staffed at only half the level it was 30 years ago and was funded at only a fraction of the level needed to ensure the standards and frequency of product inspections and the effectiveness of recalls. Moreover, the CPSC was operating with out-dated rules and laws that are inadequate to meet the needs of a rapidly changing marketplace.


Instead of working quickly with Congress to reform CPSC, the Bush Administration rejected efforts to increase the commission's funding and strengthen regulatory tools.


"On the eve of an important Senate committee meeting to consider the legislation, Nancy A. Nord, the acting chairwoman of the Consumer Product Safety Commission, has asked lawmakers in two letters not to approve the bulk of legislation that would increase the agency's authority, double its budget and sharply increase its dwindling staff. Ms. Nord opposes provisions that would increase the maximum penalties for safety violations and make it easier for the government to make public reports of faulty products, protect industry whistle-blowers and prosecute executives of companies that willfully violate laws... Ms. Nord's opposition... is consistent with the broadly deregulatory approach of the Bush administration over the last seven years. In a variety of areas, from antitrust to trucking and worker safety, officials appointed by President Bush have sought to reduce the role of regulation and government in the marketplace." [27]


Once again, the Bush Administration had prioritized free-market ideology and the interests of big business over the public's interest in having only safe products on our shelves.


Recognizing this crisis as a threat to the safety of our nation and the stability of our already struggling economy -- fears about product safety were driving down retails sales during the 2007 holiday season -- Congressional Democrats did not take "no" for an answer. Democrats worked with consumer and child safety advocates, states, the private sector, and responsible Republicans to pass H.R. 4040, the Consumer Product Safety Improvement Act of 2008, a broad-sweeping reform package that strengthened the Commission, safeguarded consumer products, and restored consumer confidence. The legislation was signed into law on August 14, 2008 (P.L. 110-314).


The Bush Administration failed to oversee oil commodity futures trading, which led to skyrocketing gas prices. Since the passage of the Commodity Futures Trading Modernization Act of 2000, trading and investment in the commodity markets have skyrocketed (trading volume has increased six-fold during the last decade and the investment levels have increased from $13 billion to $260 billion). Unfortunately, under the Bush Administration, the Commodity Futures Trading Commission (CFTC) has failed to assert the necessary oversight in regulating these new markets. Many experts believe that the un-monitored explosion in trading and investment has created excessive speculation in the commodity markets, most notably in the oil markets, which has led to artificially inflated oil prices. Moreover, the CFTC has even issued "no-action letters" to foreign exchanges (foreign boards of trade) which have allowed the futures contracts for U.S. products to be traded on foreign exchanges without proper oversight. In recent months, under pressure from Congress, the CFTC for the first time in its history charged a firm with manipulating the price of crude oil, gasoline, and home heating oil.


While the CFTC needs to use the power it already has to regulate the commodity markets, Democrats have also sought to strengthen its regulatory abilities. In July 2008, Senate Democrats offered the S. 3268, the Stop Excessive Energy Speculation Act of 2008. This legislation would have reduced the amount of excessive speculation in the oil markets and punished price manipulation. Unfortunately, when the bill was brought to floor, obstructionist Republicans blocked the Senate from even considering it. Given skyrocketing gas prices, it is almost inconceivable that Senate Republicans would place the interests of Wall Street and big oil companies over the interests of the American people in reducing oil speculation.


The Bush Administration failed to regulate the student loan industry. Under the Bush Administration's watch, the Federal Family Education Loan (FFEL) Program has been plagued by inappropriate marketing practices, conflicts of interest, and deceptive and illegal actions. Several high-profile investigations of the program by Congressional Democrats, the New York Attorney General, and others have uncovered evidence of unscrupulous practices, including:


•FFEL lenders providing compensation to schools with the expectation, and in some cases an explicit agreement that the school would give the lenders preferential treatment;


•FFEL lenders spending large sums of money on travel and accommodation expenses for meetings of their advisory boards comprised of school officials, often with the expectation of increased loan volume or other preferential treatment at the Board members' schools;


•Financial aid officers' having financial interests, including stock and options to purchase stock, in FFEL lenders that were on their school's preferred lender list or were otherwise recommended to students;


•Financial aid officers' receiving payments for consulting and other services from FFEL lenders on their school's preferred lender lists or otherwise recommended to students; and


•Education Department officials' having financial interests in the entities they were charged with regulating.


Bush Administration officials and the Department of Education have known about allegations of misconduct in the student loan industry since 2001.[28]Failing to heed those warnings, the Bush Administration killed a proposed policy to clamp down on the student loan industry that had been drafted by department officials at the end of the Clinton Administration.[29]In the years that followed, the Administration relaxed oversight of the student loan industry, allowing an apparent "revolving-door" between the Education Department and the industry. President Bush hired more than a dozen senior officials for the department who had either previously worked in the student loan business or found high-paying jobs in the sector after leaving the Department.[30]


Angered by the corruption in and mismanagement of the student loan industry, Democrats in the 110thCongress enacted the Higher Education Opportunity Act, legislation that will ensure that colleges are recommending lenders based on the best interest of students, not the self-interest of financial aid officers; prohibit payments, gifts, and other inducements from lenders to colleges and financial aid administrators that create conflicts of interest; and require colleges to establish and follow a code of conduct with respect to student loans. Under Democratic leadership, Congress also enacted the College Cost Reduction and Access Act, which reduced excessive lender subsidies and redirecting federal aid to students who need it most. Democrats will continue to ensure that the student loan system works for students, not banks.


The Bush Administration failed to properly manage the multi-billion dollar "Reading First" program.The Reading First program was established in 2002 as part of the No Child Left Behind Act to improve reading instruction in kindergarten through third grade. The program initially awarded $1 billion per year in grants to states to purchase reading materials and support teacher training. Several reports released by the Department of Education's Office of the Inspector General have detailed numerous irregularities in the program, revealing a program beset by conflicts of interest and willful mismanagement.


The No Child Left Behind Act permits Reading First to finance only scientifically-proven reading programs, and specifically prohibits the Department of Education from requiring or endorsing particular curricula. But Reading First has been plagued by accusations that states were steered toward a handful of commercial reading programs and testing instruments.[31]In the fall of 2006, the Education Department's Inspector General reported that federal officials and private contractors with ties to publishers had pressured educators in several states to purchase reading materials for the Reading First program from those publishers.[32]


All the while, President Bush and Education Secretary Margaret Spellings have consistently extolled the virtues of Reading First - maintaining that, despite its problems, the program is effective at teaching kids to read. But on top of the blatant conflicts of interest and gross mismanagement of the program, Reading First has ultimately proven to be largely ineffective. A Congressionally-mandated report released in May of this year by the Department of Education's research arm, the Institute of Education Sciences, determined that Reading First has not helped improve children's reading comprehension: "The program did not increase the percentages of students in grades one, two or three whose reading comprehension scores were at or above grade level."[33]The Bush Administration has prioritized cronyism ahead of teaching our nation's children how to read.


The Bush Administration failed to oversee private Medicare plans.Medicare beneficiaries may obtain coverage from the traditional Medicare fee-for-service program, or from private Medicare Advantage plans. Numerous articles, reports, and Congressional hearings have documented aggressive, abusive, and event fraudulent sales and marketing tactics used to lure Medicare beneficiaries to sign up for private plans.[34]The practices include the following:


•Enrolling seniors in private plans without their permission;


•Engaging in prohibited door-to-door high-pressure sales tactics;


•Falsely representing that seniors would lose their Medicare coverage if they did not enroll in a private plan;


•Neglecting to disclose that various private plans require larger co-payments for certain services than would be required under traditional Medicare, and / or more stringent coverage restrictions;


•Failing to disclose that beneficiaries may not be able to continue using their current physician under the private plan; and


•Targeting low-income beneficiaries who are also eligible for Medicaid, many of whom have cognitive difficulties or limited English proficiency, and, thus, may not be able to understand the existing coverage and protections they would forego by signing up for a private plan.


Last year, the Medicare Payment Advisory Commission (MedPAC), an independent panel that advises Congress regarding Medicare payments, found evidence of hard-sell tactics in interviews with twelve focus groups of beneficiaries across the country. In a survey conducted by the National Association of Insurance Commissioners, 39 of 41 states responding reported complaints about misrepresentations by insurance agents are companies marketing private Medicare plans, and 22 states reported fraudulent activity, such as falsifying signatures on applications.


The Medicare Modernization Act of 2003(MMA), enacted by a Republican Congress, gave the Centers for Medicare and Medicaid Services (CMS) exclusive regulatory authority over the sale of private Medicare Advantage plans, thus preempting the role that state insurance regulators traditionally play in protecting consumers from unfair marketing practices. Moreover, MMA established a payment structure whereby Medicare pays private insurance companies 13 percent more, on average, than it costs to treat the same beneficiaries under traditional Medicare - overpayments that contribute to these marketing abuses by giving private plans in incentive to maximize enrollment. As a result, many private plans have established lucrative commission structures for their enrollment brokers, providing as much as $500 per new enrollee, as well as free trips and other financial incentives.[35]These economic incentives for agents and brokers combined with lax oversight by CMS have lead to the continued unscrupulous and improper marketing practices by private plans.[36]Earlier this year, even the health insurance industry issued a call for additional federal regulation and oversight of private Medicare plans.[37]


Faced with increasing public scrutiny and pressure, as well as the prospect of imminent Congressional Action, CMS issued a proposed regulation in May of this year setting more stringent standards to protect seniors from these unfair practices. Building on this proposed rule and codifying safeguards for our nation's seniors, the Democratic-led Congress approved the Medicare Improvements for Patients and Providers Act (MIPPA), which bans questionable marketing practices by sellers of private Medicare plans and limits other sales and marketing tactics that may be deceptive or confusing to seniors. The legislation also requires CMS to place limits on compensation available to plan agents or brokers for enrolling beneficiaries. Earlier this month, CMS issued a final regulation that implements the standards set forth in MIPPA. Now CMS must oversee and enforce these standards. The Democratic-led Congress will be monitoring to ensure that CMS follows through for our seniors.


Bush-McCain Republicans promise to apply failed financial deregulation practices to the health care industry. Bush-McCain Republicans have advocated a radical transformation of our health care system, where most Americans would shop for health insurance on their own in a highly deregulated market, and consumers would be charged greater deductibles and copayments to encourage them to use less care.[38]The theory is that the marketplace is all that is needed to keep health insurers in check, but the reality is that this approach would reduce costs for insurers at the expense of patients - allowing health insurers to avoid state rules mandating that specific benefits and providers be covered.[39]Even in the current market, insurance companies deny or price-out of coverage nearly nine out of every ten Americans who apply for insurance in the individual market.[40]


While some Bush-McCain Republicans have called for greater regulation of the financial system since its near collapse due to lack of regulation and oversight, they still maintain that the government has no role in limiting health insurers' ability to deny coverage to sick people, jack up premiums, or rescind coverage after a policy holder generates substantial medical costs. In support of his plan for deregulating health care, Republican presidential nominee, John McCain, has ironically pointed to the deregulation of the banking industry as a model:


"Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation."[41]


Indeed, deregulation of the banking industry serves as a powerful example -- of why rules and standards for the health insurance industry are necessary, not dispensable. The health insurance industry, like the banking industry, has shown that it needs more oversight, not less. In California, for example, one insurer has recently been fined $13 million for improperly rescinding coverage when policy holders became ill and incurred high medical bills; another insurer was fined $3.6 million for the same misconduct.[42]California regulators also fined another plan $1 million for lying about its practice of linking employees' bonuses to their success at canceling policies sold to customers that incurred high medical bills.[43]


If Bush-McCain Republican proposals were enacted, millions of Americans with preexisting conditions would likely find it difficult, if not impossible, to find or afford coverage.[44]An estimated 137,000 people died from 2000 through 2006 because they lacked health insurance, including 22,000 people in 2006 alone,[45]yet Bush-McCain Republicans would provide less coverage, not more while increasing family costs for medical care.[46]They would allow insurance companies to deny a cancer patient the treatment she needs to survive, or refuse to pay for the diabetes medication for a sick child. And patients with coverage would be incentivized not only to avoid unnecessary care, but also needed treatment - undermining effective and preventive care that can bring down overall health care costs.[47]Senator McCain, who says he is "fundamentally a deregulator," would apply the same lack of oversight that has crippled the financial system to the health care system - and the results would be just as devastating.





[1]David Herszenhorn, The New York Times, "Approval is Near for Bill to Help U.S. Homeowners," here, (June 25, 2008); Peter Viles, Los Angeles Times (It is estimated that there are more than 8,000 foreclosure filings per day, which includes notices of default.) (May 20, 2008).


[2]Center for Responsible Lending, "The Subprime Spillover Effect," here (updated January 18 2008); The Brookings Institution, Center on Children & Families, "The Impact of the Mortgage Crisis on Children and Their Education," here (April 2008).


[3]Center for Responsible Lending, "The Subprime Spillover Effect," here (updated January 18 2008); PEW Charitable Trust, "Defaulting on the Dream," here (updated April 2008).


[4]Washington Post, "Anatomy of a Meltdown: The Credit Crisis," available here (June 15, 2008).


[5]Washington Post, "Anatomy of a Meltdown: The Credit Crisis," available here (June 15, 2008).


[6]Center for Responsible Lending, "A Snapshot of the Subprime Market," available here (last updated November 27, 2007).


[7]Washington Post, "Anatomy of a Meltdown: The Credit Crisis," available here (June 15, 2008).


[8]Washington Post, "Anatomy of a Meltdown: The Credit Crisis," available here (June 15, 2008).


[9]Center for Responsible Lending, "A Snapshot of the Subprime Market," available here (updated November 27, 2007).


[10]Alex Veiga, Homes Facing Foreclosure More than Doubled in Q1, Associated Press April 29, 2008); RealtyTrac, Foreclosure Activity up 14 Percent in Second Quarter, available here (July 25, 2008).


[11]RealtyTrac, Foreclosure Activity Increases 12 Percent in August (September 12, 2008), available here.


[12]Mortgage Bankers Association, "Delinquencies and Foreclosures Increase in Latest MBA National Delinquency Survey," available here (June 5, 2008).


[13]Center for Responsible Lending, "The Subprime Spillover Effect," here (citing the Immergluckand Smith study.) (updated January 18 2008).


[14]Center for Responsible Lending, "The Subprime Spillover Effect," here (updated January 18 2008).


[15]Bloomberg News, "Fed: Banks Tightening Standards for loans," here (updated February 5, 2008).


[16]President Bush's Budget for Fiscal Year 2002, A Blueprint for New Beginnings at 201, available here (February 28, 2001).


[17]Office of Management and Budget, Budget of the United States Government, FY2009 Historical Tables available here (February 4, 2008).


[18]Joint Statement of the Department of Treasury and Office of Management and Budget on Budget Results for Fiscal Year 2007, available here (October 11, 2007).


[19]Pilip D. Winters, "The Debt Limit: The Ongoing Need for Increases," Congressional Research Service Pub. No. RL31967 (updated March 21, 2006).


[20]President's Budget; U.S. Department of the Treasury, "The Debt to the Penny and Who Holds It," available here; Associated Press, "U.S. debt: $30,000 per American" (December 3, 2007), available here; U.S. Department of Treasury, The Debt to the Penny and Who Holds It, available here.


[21]President's Budget; U.S. Department of the Treasury, "The Debt to the Penny and Who Holds It," (updated April 25, 2008) available here.


[22]U.S. Department of Treasury, Major Foreign Holders of Treasury Securities, available here and here (updated January 16, 2008).


[23]U.S. Department of Treasury, Major Foreign Holders of Treasury Securities, available here and here (updated January 16, 2008).


[24]Congressional Budget Office (August 2007).


[25]U.S. Department of Commerce, Bureau of Economic Analysis, U.S. International Trade in Goods and Services Foreign Trade Statistics, U.S. Trade in Goods and Services - Balance of Payments (BOP) Basis, available here.


[26]Senator Kent Conrad, Floor Statement on Fiscal Year 2009 Budget Conference Agreement (May 21, 2008).


[27]The New York Times (October 30, 2007).


[28]The Washington Post, "Warnings On Student Lenders Unheeded" (May 1, 2007).


[29]The Washington Post, "Warnings On StudentLenders Unheeded" (May 1, 2007).


[30]The Wall Street Journal, "Did Revolving Door Lead to Student Loan Mess?" (April 13, 2007).


[31]The New York Times (March 15, 2007).


[32]The New York Times (May 2, 2008).


[33]The New York Times (May 2, 2008).


[34]See, for example, Robert Pear, "Hard Sell Cited as Insurers Push Plans to Elderly," New York Times, May 7, 2007; David Lipschutz, Paul Precht, and Bonnie Burns, "After the Goldrush: The Marketing of Medicare Advantage and Part D Plans," California Health Advocates and the Medicare Rights Center, January 2007; Victoria Colliver, "Medicare plans under scrutiny: Complaints are adding up from seniors upset with private health care packages," San Francisco Chronicle, January 26, 2007; and Milt Freudenheim, "Luring Customers from Medicare," New York Times, September 22, 2006.


[35]Center on Budget and Policy Priorities, "Curbing Medicare Overpayments to Private Insurers Could Benefit Minorities and Help Expand Children's Health Coverage" (May 14, 2007).


[36]See Senate Finance Committee hearings entitled, "Selling to Seniors: The Need for Accountability and Oversight of Marketing and Sales by Medicare Private Plans," February 7 (Part I) and February 13 (Part II), 2008.


[37]America's Health Insurance Plans (AHIP) Press Release (March 4, 2008).


[38]The Progress Report, "McCain's Radical Prescription," Center for American Progress Action Fund," (June 6, 2008).


[39]Think Progress's The Wonk Room, "The McCain Health Plan Explained: Freedom for Insurance Companies" (March 17, 2008).


[40]Commonwealth Fund, "Health Savings Accounts and High-Deductible Health Plans: Why They Won't Cure What Ails U.S. Health Care" (September 26, 2006).


[41]American Academy of Actuaries, Contingencies(September/October 2008).


[42]Kaiser Daily Health Policy Report (July 18, 2008 and September 12, 2008).

[43]Kaiser Daily Health Policy Report (November 16, 2007);Los Angeles Times (November 2007).


[44]Elizabeth Edwards, Testimony before the House Energy and Commerce Committee, Subcommittee on Health (September 18, 2007).


[45]Urban Institute, "Uninsured and Dying Because of It" (January 2008).


[46]Health Affairs, "Cost and Coverage Implications of McCain Plan to Restructure Health Insurance" (September 16, 2008).


[47]Center for American Progress Action Fund, "The Impact of John McCain's Policies on America's Women," (June 11, 2008).





  • Joi Chaney (224-3232)


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