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Letter to Secretary Paulson
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Washington, D.C. — Today, Congressman Elijah E. Cummings (D-Md.), a senior member of the House Committee on Oversight and Government Reform and a member of the Joint Economic Committee, sent the following letter to Treasury Secretary Henry Paulson: November 25, 2008
Mr. Henry M. Paulson Jr.
Secretary
Department of the Treasury
Room 3330
15th and Pennsylvania, NW
Washington, DC 20220
Dear Secretary Paulson:
I applaud your announcement this morning of new aid facilities to support the continued recovery of our nation’s economy. However, I strongly believe that, unlike in previous instances in which federal aid was provided to financial institutions, this aid program must come with strict written conditions that will ensure that the stated purposes of the program will be accomplished.
The announcements made this morning include the anticipated expenditure of $600 billion to buy debt from and mortgage-backed securities backed by Fannie Mae and Freddie Mac, as well as the expenditure of an additional $200 billion to support the flow of commercial lending—including credit card debt, automobile loans, small business loans, and student loans—through the purchase of illiquid assets backed by these debts.
The Federal Reserve states that the action to provide aid to Fannie and Freddie “is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.” Similarly, the purchases of assets backed by commercial debts are expected by the Federal Reserve to “help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).”
In the past, when federally provided financial aid programs have been announced – whether for government-sponsored enterprises (GSE), banks, or other financial entities like American International Group (AIG) – the stated purpose has also been to “ease credit” or “assist homeowners” or to provide some other assistance that is projected as being of direct benefit to the American consumers whose tax revenues are funding the aid programs the federal government is issuing.
Unfortunately, the achievement of these stated goals appears to have become something of an after-thought when the terms under which aid has been provided have been drawn up or when programs have been implemented. For example, soon after $125 billion was provided to major U.S. banks, it became clear that many of the banks would not lend this money as was promised but would keep it to cover their own costs or even to buy failing competitors. As a result, the American taxpayer – including homeowners who face foreclosure and/or who now owe more on a home mortgage than their home is worth, as well as individuals seeking small business loans or other types of commercial credit – often have yet to see direct benefits from the aid that the federal government has provided to financial entities. This practice gives off the appearance of carelessness on the part of the federal government when it comes to using these taxpayer funds in the most effective and efficient manner, and it is simply unacceptable.
As you move to implement this new $800 billion aid package, I urge you to require in writing at the outset that those entities that receive the aid agree to stringent, specific criteria that will make the objectives of increasing the flow of credit a reality rather than just a lofty promise. To that end, the criteria to which aid recipients should be required to agree must include specific timetables and measureable goals to ensure that a fair assessment can be made of the recipients’ compliance with the terms on which aid is given as well as of the ability of this aid program to accomplish its stated objectives. Only in this way can full accountability for this new aid program be assured.
I believe that the American taxpayers recognize the extraordinary nature of the challenges we face – and they will approve continued aid to financial institutions to enable our nation to overcome these challenges if they see that the aid that is provided is accomplishing the stated purposes for which it is being provided and if it helps the taxpayers whose money is funding this aid. However, the American taxpayers deserve better than to watch hundreds of billions of their hard-earned wages be handed out with little more than a verbal request that the funds be utilized as intended. The government can—and must—do better. We do not have a dime to waste.
Sincerely,
Elijah E. Cummings
Member of Congress
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