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Dear Friend,
A short time ago, I voted to approve what I believe was a much improved version of the original financial stabilization plan proposed by the Bush Administration and Secretary Paulson. The measure was defeated by a vote of 228 to 205. As the markets continue to exhibit volatility, it is my hope that we can move quickly to make necessary adjustments to ensure passage of a bipartisan solution. In the meantime, I wanted to keep you up to date on the details of what was included in the package voted on today.
First, let me express my appreciation for the many letters and e-mails I received in recent days concerning the Paulson plan. You made it perfectly clear that the Paulson plan in its original form, was unacceptable. Your input and that of thousands of other citizens across the country guided us in pushing to reshape the proposal in important and meaningful ways, particularly when it came to protecting the taxpayer.
Even so, today’s vote was a difficult one. A part of me would like to see these bad actors on Wall Street suffer the full consequences of their conduct without the benefit of government (and taxpayer) intervention. But over the last few days, I became increasingly convinced that if we did not do something to restore confidence in the financial markets, the real victims would be America’s working families. If the failure of large financial institutions cause credit markets to seize up, the consequences for Main Street will be severe. A further tightening of commercial credit would make it more difficult for businesses to meet payroll and ultimately lead to worker lay-offs. A shortage of consumer credit would make it tougher for families to meet many of their most basic needs. For these reasons, I was convinced and remain convinced that delaying or avoiding action is not a prudent course.
The plan we voted on today was a much more responsible economic stabilization plan than the one originally presented to us by Secretary Paulson. I supported it because it included the following important changes, which in my view, are critical to any plan we ultimately adopt:
- Where the original version asked Congress to turn over $700 billion immediately to the Treasury Secretary, the plan I supported limited the initial investment to $250 billion, with remaining funds to be phased in through installments and an opportunity for Congress to hold back the final $350 billion.
- The original plan contained no provisions for oversight or transparency in the Secretary’s purchase of troubled assets. The revised plan established four separate oversight functions including a bipartisan oversight board, a Government Accountability Office presence at the Treasury Department, an independent Inspector General and a requirement to post all related transactions online to ensure public transparency. Contrary to the initial Paulson plan, we also inserted provisions to ensure judicial review of the Treasury Secretary’s actions. Any final plan will likely involve a substantial commitment of taxpayer money to stabilize the financial market and must contain strict Congressional oversight to ensure Secretary Paulson uses his authority appropriately.
- Where the original plan placed no limitations on executive compensation, the plan I supported reigned in “golden parachute” severance packages for executives at companies that would benefit from the Government’s intervention. And though it did not go as far as I would have liked, it ensured that companies selling to the government will impose certain limits on executive salaries and bonuses.
- The original plan would have allowed the Treasury Secretary to purchase troubled Wall Street assets with very few restrictions and without any substantial prospect that taxpayers would recoup their investment. The revised plan contained a mechanism for recovering any shortfall to the taxpayers after the costs of the rescue are fully quantified. In addition, taxpayers would receive an ownership stake in the participating companies so that taxpayers could also benefit if those companies became profitable in the future.
- The original plan contained no provision for restructuring the bad loans that precipitated this financial crisis in the first place. I supported adding provisions that would have given bankruptcy courts the power to adjust mortgage terms where fair and appropriate. Ultimately, these were not included. However, the revised plan would require the government to work with loan servicers to restructure underlying loans. This would help prevent additional foreclosures so that families can stay in their homes, lenders can continue to receive payment, and the taxpayer can avoid underwriting costly defaults.
Even as we work to develop a final plan, it is important that we continue to investigate the root causes of this crisis and put in place policies that ensure we will not have to take such extraordinary steps again in the future.
The Committee on Oversight and Government Reform, on which I serve, has scheduled hearings for this purpose and the Financial Services Committee will do so as well.
I caution that any intervention we adopt, while critical to help stabilize the markets, infuse credit and stem a potential avalanche of job losses, should not be viewed as a cure-all. We face continued difficult times and must demand a continued focus on restoring the overall structural health of our economy.
Again, I appreciate that you took the time to express your views on this matter. I will continue to keep you updated on this situation in the coming days. Please do not hesitate to contact me about other issues of concern to you in the future.
John P. Sarbanes
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