Like many Americans, I’m frustrated with the federal government’s handling of the $700 billion Emergency Economic Stabilization Act (EESA) – known as the bailout. I’m also frustrated with the actions of some of the companies that received taxpayer assistance from the EESA.
 
The economic challenges and financial sector uncertainty are unlike anything America has seen in a generation. This last year has been incredibly turbulent and it’s important to understand the recent history of events that led up to our current situation and how we can move forward.
 
In early-October, Congress passed legislation at the request of Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke because they predicted a collapse of our financial system. The bill provided the Treasury hundreds of billions of dollars and the authority to purchase the toxic asset backed securities from banks through the newly-created Troubled Assets Relief Program (TARP). The rationale? By removing the troubled securities from banks’ books through the TARP, the uncertainty that led to the credit market freeze would be eliminated.
 
After the bill passed, Secretary Paulson used the flexibility afforded by the bill to substantially alter how the funds would be used. Instead of purchasing the toxic assets plaguing the financial market, the Capital Purchase Program (CPP) was created to directly inject capital into healthy banks through the purchase of preferred shares. CPP intended to make lending more attractive for the participants so they would not take cover to weather the economic storm.
 
By all indications, it appears as though the first half of the CPP brought some measure of stability to the financial market. The three-month LIBOR is now below two percent and commercial bank loans increased nearly five percent between August and December.
 
That is not to say I am pleased with the lack of clarity about how TARP funds have been used. I am particularly frustrated by the seeming lack of a master plan of how to use the TARP. Billions have been injected into both healthy firms and those on the brink of collapse. Expanding the use of TARP funds further, in late-December the Administration decided to use TARP funds to prop up the ailing US auto industry.
 
Let’s be clear… the EESA was intended to improve underlying problems in the financial sector to oil the parts of our economic engine. It was meant to assist the underlying credit system that all industries rely on in today’s economy. By extending “short-term” assistance to the Big Three, EESA has changed into an industry-specific bailout fund. This is a slippery slope with no end in sight. Once the government chooses specific industries to prop up, every other industry will come with hat in hand.
 
Recently, the House passed – and I supported – a resolution against the release of the second half of bailout funds. The Senate, however, voted in favor of releasing the rest of the money, meaning the Treasury will be able to access the funds.
 
I am concerned that we are swiftly heading toward a nationalization of our banking system. As the federal government makes greater investment in banks, private investors will shy away, fearing diluted returns - leading to further reliance on taxpayer dollars to maintain adequate capitalization.
 
Though the government’s expanded role in our financial system – and other industries – should end sooner rather than later, proper oversight of the institutions already assisted must be a priority.  I am skeptical of the government’s increased involvement in our market economy. Yet if an institution receives funding, the Treasury must be diligent in ensuring that the funds are properly used. Furthermore, new customer service and call center jobs created by companies using TARP funds must not be outsourced to foreign countries. That’s why I introduced an amendment to the TARP Reform Act to prevent this from happening. Unemployment continues to rise, and jobs created with taxpayer dollars should go to Americans. Citizens are already angry about how this money has been spent. We must assure them that their hard-earned dollars aren't paying for exorbitant bonuses and lavish vacations.
 
The future of the TARP remains to be seen. I’m worried that the program has morphed from a temporary measure to provide stability in our financial system into one that will centralize government control of our banking sector and other industries.