Emergency Economic Stabilization Act[1]

CONGRESSMAN STEVE BUYER WORKING FOR INDIANA Issue Position Statement: Emergency Economic Stabilization Act I believed Chairman of the Federal Reserve Ben Bernanke when he said that America has a serious problem with our financial markets that warrants action. However, I was bothered that President George W. Bush and Secretary of the Treasury Henry Paulson offered an immediate government solution rather than taking the time to explore effective private sector and market-based solutions. The response by Congress was typical. Act fast with little or no hearings, oversight, or ability to offer constructive alternatives. In fact, the House brought the measure to a vote so quickly that Members never had adequate time to read the bill and fully comprehend its provisions. Then, once it failed to pass the House, the Senate rushed to pass legislation without making necessary improvements to the bill that would adequately protect American taxpayers. Over the last couple weeks my offices have received call after call opposing the proposal as it was introduced as well as the final product. I listened to all sides in an effort to make the best decision on behalf of the country and to help protect the savings and retirement of families. This was a complicated issue and when I needed more information I sought out the best and brightest. To help you understand my thought process, I have provided a recap of the recent events: On Wednesday, September 17th, Speaker of the House Nancy Pelosi (D-CA) called Secretary of the Treasury Henry Paulson offering to meet the following day to discuss how Congress could help alleviate the chaos in the financial markets. Paulson said the meeting could not wait and came to the Capitol that day. On Saturday, September 20th, Secretary Paulson delivered his three page document requesting the government give him $700 billion for capricious, unreviewable power so that he could take toxic assets off the balance sheets of troubled banks. The week of September 22nd began with a Congressional visit from Vice President Cheney, a board member from the Board of Governors of the Federal Reserve and a member of the President’s Council of Economic Advisors. They met with the House Republican Conference to discuss the Paulson plan for solving the financial crisis. Unfortunately, they presented us with only one solution – a $700 billion bailout – the largest encroachment of the federal government on the private sector in America’s history. As the plan was written, no free market principles were incorporated and the taxpayer would have shouldered the burden. Realizing the skepticism of House Republicans, Secretary Henry Paulson and Chairman Ben Bernanke visited Capitol Hill on September 24th to attempt to convey the

urgency of passing this plan and the catastrophic consequences of inaction. I told the Chairman that we understood the need for liquidity and capitalization in the markets, but that any proposal must include taxpayer and free market protections. House Republicans expressed their concerns that the Paulson plan fundamentally undermined the nation’s free-market system in that it broadly socialized firms’ money-losing mortgage assets while privatizing profits and failing to provide equity positions to taxpayers. Due to House Republican’s opposition, the meeting changed the course of the negotiations, and Minority Leader John Boehner (R-OH) promptly formed a task force to devise a free market approach to solving the financial problem. On September 25th, Senate Banking Committee Chairman Christopher Dodd (DCT) and House Financial Services Committee Chairman Barney Frank (D-MA) announced that a deal had been struck on the Paulson plan. This announcement was false and misleading because House Republicans had been shut out of negotiations. This alleged deal, endorsed by Speaker of the House Nancy Pelosi and Senator Barack Obama (D-IL), was loaded with special interest provisions: • • • • •

To provide unions and other activist groups with proxy access for corporate boards; To mandate shareholder votes on compensation issues (this was a union priority); To divert funds into a housing fund to support left-wing activist groups like ACORN; To allow trial judges to arbitrarily adjust mortgages, creating a bonanza for trial lawyers; To require the federal government to sell to state and local governments, at a discount, homes the government acquires as a result of foreclosure.

That same day, House Republicans rejected the Democrat proposal and Senator John McCain (R-AZ) voiced the message of House Republicans at a White House meeting. At this meeting Senator McCain encouraged everyone to go back to the negotiating table and work into the weekend to formulate a deal that satisfied the concerns brought forth by House Republican members. During the next two days, I sought the counsel of experts in macroeconomics, finance, credit markets, and monetary policy from the business schools at The Citadel, Purdue University, Indiana University, Notre Dame University, and Ball State University. The consensus of these meetings was that action needed to be taken to ensure the stability of the marketplace and if possible, link it with intermediate tax relief for liquidity and capitalization, but the government must be the lender of last resort. Championed by Senator McCain, House Republicans were finally included in the discussions with Democrats, and conservative principles began to be incorporated into the plan. A verbal agreement was reached between House and Senate leaders on September 27th. The House Republican Conference was instrumental in securing help for Main Street, funding assistance by Wall Street, and Congressional and corporate accountability and reform. Key priorities that House Republicans help secure in the negotiations include:

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If after five years, the government has a net loss as a result of the purchase program; the President is required to submit a proposal to recoup those losses from the entities that benefited from this program; Allows community banks to count capital losses on Government Sponsored Enterprises (GSE) assets against ordinary income, providing much needed relief for local banks; Authorizes government agencies that hold mortgages to do work-outs with troubled borrowers, provided such workouts do not harm the interests of taxpayers; Requires the establishment of an insurance guarantee program that, in lieu of purchasing assets with taxpayer funds, is available to insure assets at no cost to the taxpayer. Costs would be fully paid for by participating companies (i.e. those receiving federal assistance); Cuts the Treasury’s up-front authority in half by giving the Treasury $250 billion in immediate authority, with another $100 billion available after the Secretary reports to Congress. And, providing Congress the authority to withhold the remaining $350 billion; Requires a study on the role of the mark-to-market rules and their impact on the current financial crisis; Authorizes the Security and Exchange Commission to suspend the mark-tomarket rules.

On Monday, September 29, 2008, the House failed to pass H.R. 3997, the Emergency Economic Stabilization Act, by a vote of 205-228. I voted against this bailout of Wall Street because it was a hurried and stressed solution that in the end may not have been in the taxpayers’ best interest. After the bill failed, many of us were hopeful a compromise would be reached between all parties that would not burden taxpayers and would keep in place the principles of a free-market economy. Unfortunately, the final compromise did not achieve these goals. My primary concerns with the final legislation include: • • • • •

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Turns to the government first instead of turning to free market solutions such as accounting rule changes regarding mark-to-market; Provides few guarantees on the details, costs, or likelihood of success of this financial stabilization plan; Does not require the insurance program as a viable alternative; Provides no mechanism to prevent the current situation from occurring again at a later date; The bill was distributed less than 24 hours before a vote was called with no opportunity for members of either party to offer constructive amendments to improve the bill; Increases the statutory limit on the public debt from $10 trillion to $11.3 trillion.

On Tuesday, September 30th, I met with a team of financial experts from Purdue University’s Krannert School of Management to develop economic and market-based solutions. These ideas were to be brought back to the Republican working group so we could take them to the negotiating table with the Administration and the Democrat leadership. Unfortunately, the rug was pulled out from underneath us by Secretary Paulson running to the Senate for a deal. The Senate then compromised House action by passing the same flawed bill which was defeated by the House two days earlier with provisions, many of which were good policy for a stimulus

bill but would do nothing to stem the mortgage crisis or credit crunch. Finally, the door was slammed shut on House Republicans by Speaker Pelosi who denied us the opportunity to make improvements to the bill. In the end, I could not support the Senate action. Aside from raising the FDIC limit from $100,000 to $250,000, there were no significant changes to the legislation to protect the taxpayer. Again, the federal government should be used as the last resort, not the first. Finally, on October 3, 2008, the House again voted on the final Wall Street bailout package – this time on the Senate-passed version of the bill, H.R. 1424, the Emergency Economic Stabilization Act. The House passed H.R. 1424 by a vote of 263171. I voted to protect the taxpayer and voted against this bill. Government intervention in the free market can be problematic; therefore government should be the lender of last resort. This bill is still a hurried and stressed solution, which in the end may not be in the best interest of the taxpayers. I am uneasy that bureaucrats will now be making valuation decisions on bad debt and using the taxpayers’ money to purchase these toxic assets. This process demands immediate oversight to protect the taxpayer as Department of the Treasury implements this legislation.