Like you, I am deeply concerned about the poor state of our economy and am outraged that reckless real estate bets made out of greed by a group of irresponsible Wall Street CEOs have pushed the financial health of our nation to the brink of disaster. The calamitous events in recent weeks have served to reaffirm that our economy is on the wrong track. All around us, the price of food, gasoline, and health care are skyrocketing while wages are staying hopelessly flat. Our neighbors are losing their homes, our friends are losing their jobs, and we are feeling squeezed on all sides. I believe that the failed economic policies of the last eight years have led us to this point, and that we must take action now to level the playing field for working families in order to change the course of our economy and safeguard American prosperity.
Near the end of last year, direct evidence of this brewing financial storm emerged as the number of foreclosures increased, forcing thousands of our neighbors to leave their homes. This massive jump in foreclosures was caused by a number of different factors, such as the increase in subprime, or high-risk, lending and the growth of real estate speculation, which inflated the values of homes across the country. As borrowers and lenders took greater risks while the price of gas, food, health care, and other necessary commodities skyrocketed, many homeowners found themselves unable to make payments on their mortgages.
In July 2008, Congress intervened and passed H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act, with my support. The bill provided emergency assistance to cities and states to purchase and rehabilitate foreclosed properties that depressed neighborhood property values. To calm the markets, the bill authorized the Secretary of the Treasury to temporarily assist Fannie Mae and Freddie Mac, two government-sponsored enterprises that owned or guaranteed a majority of the mortgages in the U.S. In early September, the Treasury placed Fannie Mae and Freddie Mac under the conservatorship of the U.S. government.
Still, the effects of the housing crisis reverberated through the financial markets as risky financial investments in commodities known as mortgage-backed securities, which were largely dependent on the value and payment of home mortgages, began to go bad. As a result, nearly half a dozen financial institutions that survived the Great Depression and two world wars have gone bankrupt. This is not just bad news for banks and investors, it is a problem for everyone. Without swift, responsible, and effective action, the collapse of these former pillars of the financial industry could wreak havoc on the broader business community and on our entire economy. As the financial collapse leads to a freeze in lending and the ability to secure credit, the effects could easily prevent families from getting home and car loans, stop small businesses from meeting payrolls and obtaining necessary capital, and send credit card interest rates soaring.
In reaction to this crisis, the Secretary of the Treasury came to Congress looking for a $700 billion blank check to bail out Wall Street. His proposal had no limits on his power, no restrictions on his authority, and no oversight from either Congress or the courts. It was clearly unacceptable. Like all of us, I was outraged at the thought of giving greedy, freewheeling CEOs a “no strings attached” lifeline, while average families continue to struggle with flat wages and increasing costs. I was pleased that Congressional negotiators made significant changes and improvements in his proposal.
Members of Congress from both sides of the aisle worked to come up with a realistic plan that would responsibly address the crisis while protecting our tax dollars. Under the terms of the initial plan proposed by bipartisan negotiators, H.R. 3997, the Secretary of the Treasury would have been authorized to use government funds to purchase troubled assets from financial institutions. The Treasury would have invested money into these assets with the expectation that once the market stabilizes, the assets can be sold for a profit. If taxpayers had not recouped their entire investment after five years, the President would have been required to submit a detailed plan to Congress to collect money from the companies who participate in the program in order to fully reimburse taxpayers for their loan.
The Secretary of the Treasury would have had access to $250 billion to invest immediately, with another $100 billion made available after certification of its necessity from the President. If deemed necessary, the final $350 billion in assistance could be released as needed, subject to Congressional approval. The bill would have established comprehensive oversight of each purchase the Treasury Department made by requiring the details of each transaction to be published online within 48 hours. Each transaction would have been subjected to oversight by Congressional and independent committees and the courts, as well as a newly created Special Inspector General.
The legislation would have also put a stop to fat corporate bonuses by putting limits on executive compensation and “golden parachutes” for the executives of the companies receiving assistance from the U.S. Treasury. In addition, it contained provisions requiring the Treasury to minimize foreclosures and to assist homeowners in modifying unwieldy loans. This initial attempt to pass a rescue package through the House of Representatives failed by a vote of 205-228 on September 29, 2008.
Immediately after the vote, the market reacted badly to the news. The Dow Jones Industrial Average dropped 777 points by the end of the day in the largest single-day point drop in history. This drop represented $1.2 trillion dollars in lost assets in one day. As a result of those losses, the value of 401Ks, pension plans, and college funds declined considerably in value. Later in the week, it was announced that 159,000 jobs were lost in the United States during the month of September, underscoring the need to take action.
On October 1, 2008, the U.S. Senate passed H.R. 1424, a slightly revised version of the initial Economic Stabilization Plan. In addition to the investment plan and limits to executive compensation included in H.R. 3997, H.R. 1424 also increased the ceiling on bank deposits insured by the FDIC from $100,000 to $250,000 and included $100 billion in tax cuts to provide tax relief to middle-class families and increase business investment and innovation. These tax benefits are designed to help a wide array of American businesses compete and are typically extended each year with broad bipartisan support. The legislation also included relief from the Alternative Minimum Tax for hundreds of thousands of American families and disaster relief for the Gulf Coast and Midwest. The House passed H.R. 1424 on October 3, 2008 by a vote of 263 – 171, and soon after, the President signed it into law.
Although I share your anger about the need to take these unprecedented steps to stabilize our economy, I reluctantly voted for the EESA both times it was considered by the House because I remain convinced that decisive action is needed to try to contain the economic contagion created by Wall Street’s collapse before it spreads into the far reaches of our economy and leaves lasting damage. The financial industry is of great importance to New York State, which relies on financial institutions for a significant percentage of tax revenue and jobs. The Hudson Valley is particularly vulnerable to difficulties on Wall Street, and I fear that the workers, small business owners, and families in my district will face severe economic ramifications if we do not stem the tide of this financial crisis.
Without action, I am concerned that credit markets could freeze and the ripple effects could prevent families from being able to get home and car loans, stop small businesses from being able to meet payrolls and obtain needed capital, and send credit card interest rates through the roof. That is chance I do not believe we can afford to take. While this plan is far from perfect, I believe it addresses the economic crisis in a responsible way that helps Wall Street while still looking out for Main Street and protecting our tax dollars. For these reasons, I voted in favor of the economic stabilization plan.
However, it must be clear that the enactment of this plan is only a first step. This crisis is largely the result of the Bush Administration’s and previous Congress’s failure to stem reckless behavior on Wall Street, and we cannot allow that lapse in oversight to be repeated. Congress must remain vigilant, aware of how this tremendous authority is being exercised by the Administration and in the markets, and ready to intervene at the first hint of abuse or ineffectiveness. I am pleased that the Committee on Oversight and Government Reform has already begun to investigate the causes of this crisis, and that there is acknowledgment that we must to work to make more fundamental investments in the true engines of our economy, such as American workers, innovators, and small businesses, in order to more permanently strengthen our prosperity.
