I did not support the Senate’s $850 Billion Wall Street Bailout plan that passed the House today. I agree that decisive action must be taken, but this proposal does not address the underlying economic and financial problems that are at the heart of the current crisis. 

After months of assuring us that the economy was sound, President Bush stunned the world two weeks ago with news that we faced a severe financial crisis.

When the president finally addressed the nation, he warned us of an economic Armageddon unless he got a blank check and more executive authority to control the banking system.  He demanded billions in new spending without presenting any diagnosis of the crisis, or even a plan to address it.  We were told that it needed to be approved by the Congress in one week, as if the country was being held hostage. 

When pressed on the details, the Treasury Department stated that they had no hard data to support the initial $700 billion request.  In fact, a spokesperson recently admitted, "It's not based on any particular data point -- We just wanted to choose a really large number."

The President’s two and a half page plan never addressed the serious problems in the housing market or explained how the economy got in such bad shape.  He did not acknowledge the steady decline in housing values and how equity, a source of wealth for most Americans, is vanishing.  Experts now tell us that more than ten million mortgages are on the verge of foreclosure, and rewriting these notes has become almost impossible. 

Secretary Paulson was a bit more descriptive, suggesting that the government needed to purchase “toxic” mortgage backed securities that are now “clogging” our financial system.  Many of these troubled mortgages are sub-prime instruments that have been carved up, repackaged and securitized, sold up the chain to hedge funds and investments banks, all of them making massive quantities of money. 

Today, there are millions of securities backed by these worthless mortgages. They were placed by bad brokers and bad mortgage companies as part of a financial shell game that has generated huge financial rewards for those who invented them or traded them. 

In one case, we have the example of a CEO that was hired three weeks ago and received a $7 million bonus. His firm just went under, bought out by an investment bank backed by the U.S. taxpayer.  He was quickly replaced and given a $12 million termination contract on the way out the door. This CEO worked for three weeks and ends up with a $19 million bail out package. That is simply outrageous.

Ignored in all this, is the widespread trading of hedge funds and derivatives, now in the vicinity of $46 trillion to $56 trillion.  Nobody knows who owns them all or where they exist on anyone’s balance sheet.  We don't even know the quality of these securities, because they are unregulated.

As the risks and losses on Wall Street have piled up, the troubles are now infecting the entire economy.  The Fed says these questionable securities need to be purchased soon in order to “add liquidity” to a cash and credit starved financial system, with the entire cost of it all falling squarely on the back of the taxpayer.

For almost two weeks, Congressional offices have been flooded with angry calls, the vast majority in opposition to the Bush plan.  Criticism has even come from experts in the financial markets. Last week, Congress was presented with a petition from two hundred economists objecting to the proposal on the grounds that it was too vague and could even create perverse incentives; with its long-run effects still unclear.

With the President’s credibility at an all time low, his request was dead on arrival.  Now, the American people are looking to Congress for leadership and for answers. Most constituents have been calling, urging us to get at the root cause of the problems. They want those that created these toxic securities to pay for the costs of cleaning up the financial wreckage.

The American people want us to restore integrity and transparency to our financial system.  We need more vigorous prosecution of predatory lending and unlawful financial deals, better regulation on the endless variety of exotic financial instruments, hedge funds and derivatives. We need to end rampant speculation. 

We also need to end the predatory lending and abusive credit practices that are widespread throughout the country.  I recently filed legislation to establish a Consumer Credit Safety Commission to end these abuses and give consumers much stronger protections.

We need to make sure that those who caused these problems are the ones who pay for them.  That is why I have promoted legislation called the “Let Wall Street Pay for Wall Street’s Illiquid Assets Act of 2008” (HR 7125) to re-impose a modest stock transaction excise tax or “STET” to underwrite losses in the financial markets.  It would work much like flood insurance, which underwrites losses for natural disasters. 

Studies have shown that a fee on one fourth of 1% on each transaction would provide up to $150 billion a year. The fee could be adjusted based on the risk of the security.  It would provide a source of funding to clean up the large volume of toxic securities and mortgages created by Wall Street firms. Other countries use this tool to limit speculation. We should too.

We also need to reform our bankruptcy laws which protect abusive credit card companies and predatory lenders at the expense of consumers and home owners.  That is why I have filed the Emergency Homeownership and Mortgage Equity Protection Act of 2007. This legislation allows toxic mortgages sold by unscrupulous brokers to be rewritten in bankruptcy court.  More importantly, it will not cost the taxpayer a dime.

This is not a complete program, but these are sensible steps that we can take right now. 

After eight years of unregulated, unfettered, cowboy economics, the American people want us to get at the underlying financial problems which are causing havoc in our economy. These initiatives will help get at some of the causes of today’s problems and prevent them from happening again. 

The American people deserve a real plan. They need one now. 

 

-30-