Washington, DC -- U.S. Representative Mike Doyle (PA-14) released the following statement explaining his vote on H.R. 1424, the Emergency Economic Stabilization Act, which was approved by the House of Representatives today:

I firmly believe that the economic crisis we are currently facing is one of the most serious problems I’ve had to deal with during my service in Congress.  I believe that our economy is on the edge of grinding to a halt – and that if that were to happen, our economy would lose millions of jobs and trillions of dollars.  That’s why I voted in favor of the economic stabilization bill considered by Congress this week.  In a word, I voted for this legislation because I believed with my whole heart that doing nothing was not an option.

WHAT CAUSED THE PROBLEM

How did we get into this mess?  I believe that two main factors created the sub-prime mortgage crisis and the financial meltdown it has caused – insufficient regulation and artificially low interest rates.  Over the last 8 years, the Bush Administration and its supporters in Congress have pursued ideologically-driven policies of widespread deregulation and less government regulation.  Nobody likes government intervention in their daily lives, but we also expect government to establish a fair and open marketplace and protect us from unfair abuse by big companies.  When it came to mortgages and other financial services, the federal government under President Bush turned a blind eye to the sub-prime mortgage market and opposed Congressional efforts to end predatory lending practices in which lenders encouraged homebuyers to finance homes they couldn’t really afford with nontraditional mortgages.  The administration and the Federal Reserve compounded the problem by keeping interest rates artificially low to stimulate economic growth;  the unfortunate side effect of keeping interest rates low was that banks and other financial services companies decided to use that borrowed money to buy into the rising real estate market – further driving up home prices and forcing potential homebuyers into nontraditional mortgages.  Finally, companies that originated all these sub-prime mortgages sold them off to investment banks that used them to create mortgage-backed securities to sell to insurance companies, pension funds, and other mainstream investors – and the government failed to adequately regulate these complicated investments.  When the real estate bubble collapsed last year, this whole unstable house of cards came tumbling down.  I don’t feel sorry for the mortgage companies and banks that made these unwise home loans, nor do I feel sorry for the big investment firms that invested in them – they deserve to suffer the consequences of their poor investments – but I am very concerned that they’re going to pull the rest of the American economy down with them.

WHAT’S AT STAKE

When the real estate market collapsed last year, these mortgage-backed securities plummeted in value.  The banks, insurance companies, and pension funds that invested billions of dollars in this “bad paper” suddenly had a lot of assets that weren’t worth very much.  That raised the question of whether they still had enough money to pay off their customers.  As soon as public concerns arose about a particular bank or financial services company, its customers started trying to take their money out before the bank failed.  These runs on the bank make troubled banks cash shortage even worse.  Today, many banks won’t loan each other money because they’re concerned they won’t get that money back.  More to the point, many banks have stopped making loans to individuals and small businesses because they’re hoarding cash to make sure they can meet their depositors’ withdrawal demands.  Such a credit crunch could ripple through our local economy, destroying jobs in Pittsburgh and forcing local small businesses to close.  Moreover, it is already making it harder for creditworthy borrowers to get car loans, mortgages, and student loans.  The banking and real estate industries’ collapse has already hurt retirees’ pensions, senior citizens’ incomes, and working families’ savings – and there’s a strong possibility the damage will spread and get much worse.  This crisis threatens everybody on Main Street – not just the fat cats on Wall Street.  That’s why Congress needed to act.

WHAT THE BILL DOES

Congressional leaders and the Administration have worked together over the last 2 weeks to put together a plan that would stabilize our economy and end the credit crunch that could bring our economy to a standstill.  The plan is based on the presumption that our economy won’t turn around until the unworkable mortgages are dealt with and the public’s confidence in the security of our banking system is restored.  In order to achieve these goals, the Emergency Economic Stabilization Act would authorize the U.S. Treasury to buy up to $700 billion in mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit.  Once the federal government owned these mortgage backed securities, it could restructure the mortgages it owned completely – allowing creditworthy homeowners to avoid foreclosure – and work with private sector lenders to restructure the mortgages in which it has partial ownership.  In addition, the federal government will offer loan guarantees to encourage private sector mortgage holders to renegotiate viable mortgages for creditworthy homeowners who are at risk of foreclosure.   In addition, the bill raises the FDIC insurance coverage of bank deposits from $100,000 to $250,000 – which should help to increase public confidence in the banks. 

The bill included provisions to make sure that corporate executives who made bad decisions are not allowed to dump their bad assets on the government and then walk away with millions of dollars in salary and stock options.  In order to participate in this program, companies will lose certain tax benefits and, in many cases, must limit executive pay. The bill also limits “golden parachutes” and requires that unearned bonuses be returned.

This bill will also allow the government to recover all of the taxpayers’ money spent by giving the government partial ownership in the companies that sell their problem assets to the Treasury.  Over time, most of those assets are expected to recover much of their value – and the government will be able to resell mortgages at a profit.  If the government still comes up short after we sell off those assets, the bill requires the president to submit a plan to Congress to make the taxpayers whole by imposing new fees on the financial services industry.  That way, over the long run, taxpayers will not end up paying for Wall Street’s mistakes.  Wall Street and the people who made these unwise investments will bear the burden, as they should.

And, finally, this bill provides strong oversight over the stabilization efforts it calls for.  Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, and then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval).  The Treasury must report on the use of the funds and the progress in addressing the crisis.  The bill also establishes an Oversight Board so that the Treasury can’t act in an arbitrary manner.  Finally, the bill establishes a special inspector general to protect against waste, fraud, and abuse.

In addition, Congress is going to hold oversight hearings in the coming weeks and months to determine what happened, who’s responsible, and what we need to do to make sure it doesn’t happens again.  We’re also going to make sure that whoever broke the law is prosecuted so this doesn’t ever happen again.

SUMMARY

In closing, I want to let you know that I don’t know any Wall Street bankers, and that I haven’t taken any contributions from Wall Street Bankers.  My concern has always been Pittsburgh and our local economy.  I decided to vote for this economic stabilization bill because I felt that doing nothing would put Pittsburghers jobs, pensions, and savings at risk.  I hope that time will prove me right, but in any case I wanted you to know why voted to support this bill.