At the request of Republican Leader Boehner, a House GOP member working group led by Rep. Eric Cantor has put forth a series of economic rescue principles aimed at ensuring the recovery is funded by Wall Street, not Main Street. The Leader’s working group consists of Reps. Bachus, Biggert, Campbell, Cantor, Carter, Castle, Hensarling, LaTourette, McCotter, McCrery, Putnam, and Ryan.  Following are the principles, which were outlined in a letter Leader Boehner sent to Speaker Pelosi earlier today. 

House Republican Working Group--Economic Rescue

Principles

I.       Wall Street – Not Taxpayers – Should Fund the Recovery 

  • The most troubling part of Sec. Paulson’s plan is that it relies wholly on taxpayer funds. House Republicans believe that rather than providing taxpayer funded purchases of frozen mortgage assets to solve this problem, any rescue package should adopt a plan to insure mortgage backed securities (MBS) through payment of insurance premiums.
  • Currently, the federal government insures approximately half of all MBS and can insure the rest of those still outstanding.  However, rather than taxpayers funding the insurance, the holders of these assets should pay for it.  The working group’s proposal would direct the Treasury Department to design a system to charge premiums to the holders of MBS to fully finance this insurance.

II.     Private Capital – Not Tax Dollars – Should Be Injected Into Financial Markets         

  • Instead of injecting taxpayer funds into the market to produce liquidity, private capital can be drawn into the market by removing burdensome regulatory and tax barriers that are currently blocking private capital formation.  In short, too much private capital is sitting on the sidelines during this crisis, and it is well past time to unleash it.
  • Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another.  In addition, the working group recommends a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity

III.    Immediate Transparency, Oversight, and Market Reform 

Both Republicans and Democrats have made clear that they believe there is not a strong enough oversight component in Sec. Paulson’s plan.  The House Republican working group’s proposal addresses this flaw.  To begin, the plan would require participating firms to disclose to the Treasury Department the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report. Additional safeguards include:

  • To limit federal exposure for high risk loans, the working group’s recommendations mandate that Government Sponsored Entities no longer securitize any unsound mortgages.
  • The plan would call on the Securities Exchange Commission (SEC) to audit reports of failed companies to ensure that the financial standing of these troubled companies was accurately portrayed.
  • The blueprint would guarantee that Wall Street executives do not benefit from taxpayer funding. The proposal would call on the SEC to review the performance of the credit rating agencies and their ability to accurately reflect the risks of these failed investment securities.
  • The working group recommends that Congress create a blue ribbon panel with representatives of Treasury, SEC, and the Federal Reserve Board to make recommendations to Congress for reforms of the financial sector by January 1, 2009.  

For the latest text of the Economic Rescue Plan, posted September 29, 2008 at 9:30amEST.

Click Here