Economic Recovery Q&A;

Q: REP. ISRAEL, A BUNCH OF RICH WALL STREET EXECUTIVES RIPPED-OFF THEIR COMPANIES. SOME IRRESPONSIBLE BORROWERS ALSO GOT INTO MORTGAGES THEY COULDN'T AFFORD. BUT I PLAYED BY THE RULES -- WHY SHOULD CARE ABOUT "BAILING THEM OUT"?

Response from Rep. Israel: It's true that some bad decision makers helped cause this crisis. But if we don't act to correct it, every single one of us will be directly impacted. It's kind of like drifting in a rowboat where someone else punched a hole on their end. If that hole on their side of the boat isn’t plugged-up, you'll soon be in the water, too.

Unabated, the Wall Street meltdown would mean even lower values for your home, an inability to borrow for college costs, and higher consumer credit interest rates.

The crux of this crisis is that credit has dried up. For example, banks which are now holding a large number of distressed mortgages don't have funds to lend money. On the other end, small businesses that are normally good borrowers can’t get the credit they need for normal operations.

Without responsible credit, the economy shrinks. For instance, if you can't get a car loan, the auto dealers in our neighborhood stop selling cars. (Last month, their sales were down about 50 percent.) So they lay-off employees, in the showroom and the garage. Those workers then cut back on their own purchases, which shrinks the economy. Some people now can't even pay their mortgage, which then means more foreclosures. And more foreclosures in a neighborhood reduces the property values of ALL surrounding homes (the average homeowner has lost over $14000 in equity as a result of the foreclosure crisis).

So even though you may have paid your bills and didn't lose your job at the auto dealer, you can still get hurt in the end if the system isn’t fixed.

No one should expect this bill to instantly solve all our economic problems. I wish one or two votes in Congress could repair the damage caused by 8 years of Bush economics, but it can’t. This is a first step among many we need to take.

Q: SO HOW BAD CAN THIS GET?

Response from Rep. Israel: Rather than answering with statistics, I recently asked subscribers to my e-newsletter to share their experiences. Here are some of the responses I got today:

“Congressman, I’ve lost my house of 33 years. We were about to go into foreclosure in June 2007 but were fortunate enough to have our son and daughter-in-law bail us out by buying our house. We now pay them rent.”

“I’ve lost 30% of my 401k (about $20k)”

“We are currently trying to get an education loan for our daughter’s first semester at college and so far have been unable to”

“We’ve lost a very significant amount of our portfolio and 401k, so much so that at the age of 67 I am still working because I am afraid to retire with the severe decline... our daughter moved to Boston – could not make it here on the island, which is sad as she was born and raised here.”

“..if things don’t improve I, as well as many others will not have the disposable income to help keep the economy moving along as it should. There will only be enough money for the bare essentials.”

“My 401k drops more every day. We’ve stopped eating out and have cut back on several items”

“It’s been very hard to secure a student loan with enough funds to cover my daughter’s education and a car loan is very difficult”

Here's another concern you should know about:

When you pay for a pair of jeans at the mall with a credit card, your bank itself depends on credit flowing to support the purchase and reimburse the merchant. But if credit dries up completely even for the bank, that means that bank might not be able to process credit card transactions.

Put simply, without any change, our economic situation could grow worse – credit markets could freeze and Main Street could continue to suffer. Long Island families could see their credit card limits slashed and interest rates increase. That also means that families wouldn’t be able to take out basic home and car loans and employers wouldn’t be able to make their payrolls. I want to do everything in my power to avoid this.

Q: OKAY, I KNOW THERE'S A PROBLEM! BUT WHAT'S WITH A $700 BILLION RESCUE PLAN?

Response from Rep. Israel: The Bush Administration's original plan was a bad idea. The overall premise, however, isn't. And we’ve made major improvements to their bill.

Most economists agree that the recession is based on that absence of credit I discussed in question one. Essentially, credit has "frozen" because banks are sitting on assets that lost value (mortgages) and don't want or can’t afford any additional exposure.

Banks aren't lending to people who want to buy a car or expand their businesses, and as a result, the economy has sputtered. So we need to inject capital into the markets. By buying some of those distressed assets at very low prices, we are freeing-up banks to begin lending again, with the intention of reselling the assets when they increase in price.

Let's say a $750,000 home in your neighborhood is in foreclosure. You pay $200,000 for it as an investment, and then you wait for the market price to gradually increase. Ultimately you sell it for $600,000, recouping your investment with a profit. Though not a perfect analogy, this is how the rescue package is intended to work.

Q: SO YOU’RE NOT ACTUALLY SPENDING $700 BILLION OF MY TAX DOLLARS?

Response from Rep. Israel: No. We are giving the Treasury Department the authority to invest up to $700 billion in these distressed assets. We’re not simply writing a check for $700 billion.

Q: AND WHAT DO WE GET IN RETURN?

Response from Rep. Israel: In addition to getting credit to flow again, you get:

1. The assurance that whatever profits this plan generates will be used to pay down the national debt.
2. Strong new restrictions on golden parachutes and excessive payouts.
3. Our bill also offers help to homeowners and small businesses:

• Provides property tax relief to up to 30 million homeowners -- extending a new $1,000 property tax deduction for non-itemizing couples through the end of 2009
• Increases from $100,000 to $250,000 the amount of bank deposits insured by the FDIC
• The government can work with loan servicers to change mortgage terms (reduce principal or interest rate, lengthen time to pay back the mortgage) to reduce 2 million projected foreclosures in next year
• Extends provision (enacted earlier in this Congress) to stop tax liability on mortgage foreclosures
• Helps save small businesses that need credit by aiding small community banks—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

Q: STILL, IT SEEMS UNFAIR THAT SOME OF THESE RICH WALL STREET EXECS KILLED THEIR COMPANIES, MADE A KILLING WITH THEIR GOLDEN PARACHUTES, AND NOW WE HAVE TO PAY THE PRICE! WHERE IS THE ACCOUNTABILITY?

Response from Rep. Israel: The original Bush Administration plan was, frankly, a blank check with no accountability. Here's how we improved it:

For companies publicly auctioning over $300 million, we’ve said no to multi-million dollar golden parachutes for top 5 executives after auction, we’ve said no to tax deductions for executive compensation over $500,000, and we penalize golden parachutes for CEOs who are fired or have run the company into the ground.

For companies from which the government makes direct purchases, we’ve said no to multi-million dollar golden parachutes, we limit CEO compensation that encourages unnecessary risk-taking, and we’re going to recover bonuses paid to executives who promise gains that turn out to be false or inaccurate.

Going forward, I also think Congress should issue subpoenas for those CEO's who committed malfeasance, haul them in, and vigorously support investigation and prosecution.

Let me put it another way - an arsonist created a fire. We need to put out the fire first, and then go after the arsonist.

Q: WHAT OTHER IMPROVEMENTS WERE MADE TO PRESIDENT BUSH'S ORIGINAL $700 BILLION PLAN?

Response from Rep. Israel: I insisted from day one on substantial changes to make the Bush-Paulson plan acceptable—protecting American taxpayers and Main Street—and my colleagues and I worked to incorporate these elements in the new legislation.

We require Congressional review after the first $350 billion is disbursed, and we give taxpayers a share of the profits of participating companies. We also put taxpayers first in line to recover assets if a company fails. Moreover, we require a President five years from now to submit a plan to ensure taxpayers are repaid in full, with Wall Street making up any difference. Lastly, we allow the purchase of troubled assets from pension plans, local governments, and small banks.

We’ve also set up 4 separate independent oversight entities or processes to protect the taxpayer:

1. A strong oversight board appointed by bipartisan leaders of Congress
2. GAO oversight and audits at Treasury to ensure strong controls; prevent waste, fraud, and abuse
3. An independent Inspector General to monitor the Treasury Secretary’s decisions
4. Transparency—requiring online posting of transactions—to jumpstart private sector demand

Lastly, we set up meaningful judicial review of the Treasury Secretary’s actions.

Q: WHAT PROOF DO YOU HAVE THAT THE BILL IS IMPORTANT TO OUR ECONOMY?

Response from Rep. Israel: When the first bill we voted on failed on September 29, the Dow dropped 777 points. That market drop sent pensions, 401k's, IRA's and other funds into a tailspin. It created panic in credit markets around the world.

Although this bill wasn’t intended to fix our problems overnight, it was intended to prevent an overnight collapse. This is about avoiding a long and deep recession and helping Main Street from enduring more problems from Wall Street.

This is the first step to help put our markets on the road to recovery. It’s not going to be a magic bullet, but it’s a step we needed to take.