Dear Mr. Williams:
Thank you for taking the time to contact me regarding the stabilization of the economy and our financial infrastructure. I appreciate hearing from all Pennsylvanians about the issues that matter most to them.
After passage by the United States Senate and the House of Representatives, the Emergency Economic Stabilization Act (EESA) of 2008 was signed into law by the President on October 3, 2008. The Act helps to stabilize our credit markets, protect retirement and pension savings, modify troubled loans and protect taxpayers from paying for Wall Street's mistakes.
This is a time of great economic uncertainty in our Nation's history. For many families in Pennsylvania and throughout the country, the recession has been part of their lives for many months now. In August, the unemployment rate in Pennsylvania went from 5.4% to 5.8%, and for some parts of the state, it went up far more than half a percentage point. We also learned that in the month of August the foreclosure rate in Pennsylvania went up by more than 60% from the previous year. The job loss and foreclosure rates are indicators of the economic trauma that many families have felt in Pennsylvania and across America.
Like you, I am not happy with the current crisis, and I'm angry about the climate of deregulation and deference to Wall Street over the last eight years that got us into this mess. However, failing to act would not only have punished those who brought us to this situation, it would punish everyone.
The EESA provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses and other companies to access credit. After purchasing these assets, the Department of Treasury will hold them until markets for them recover. Treasury would then plan to sell these assets for a profit, recouping most or all of the $700 billion for the benefit of taxpayers.
You should know that Congress significantly improved the original proposal presented by the Bush administration. In the enacted version, executives will be held accountable for their past decisions through limitations on compensation, prohibitions against golden parachutes or excessive retirement packages, and requirements that unearned bonuses be returned. The improved legislation also requires participating companies to provide warrants and other forms of equity so that taxpayers will share in the profits if the stock of these companies goes up as a result of Treasury Department intervention.
The EESA contains several provisions directed at stemming the tide of mortgage foreclosures thereby keeping families in their homes and addressing the root cause which has led to a loss of investor confidence and the freezing of credit markets. It would require the Treasury Department, where possible, to modify troubled loans to help American families keep their homes. It would also expand the HOPE for Homeowners program and require other federal agencies to modify loans that they own or control. To ensure that Treasury did not receive a blank check, the legislation made $250 billion available immediately and requires the President to certify that additional funds are needed. The Treasury must report on the use of the funds and on progress in addressing the crisis. The bill establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner and establishes a special inspector general to protect against waste, fraud and abuse.
The United States is in a financial crisis that could become worse than anything in a generation. In addition, our Nation's problems are already spreading into the global economy. Without continued federal government intervention, there is a real threat to small businesses and jobs, as well as mortgages, pensions and savings.
Enactment of this legislation was just the first in a series of steps we must take to bring about economic recovery. We need to institute rigorous and aggressive regulation of players in the market place in order to prevent the abuses which caused our economic problems.
Again, thank you for sharing your thoughts with me. Please do not hesitate to contact me in the future about this or any other matter of importance to you.
If you have access to the Internet, I encourage you to visit my web site, http://casey.senate.gov/. I invite you to use this online office as a comprehensive resource to stay up-to-date on my work in Washington, request assistance from my office or share with me your thoughts on the issues that matter most to you and to Pennsylvania.
Sincerely,
Bob Casey
United States Senator
Showing posts with label The Financial Market Crisis. Show all posts
Showing posts with label The Financial Market Crisis. Show all posts
Friday, November 14, 2008
Monday, October 27, 2008
Tim Holden's Replay to Darnell
Dear Mr. Williams:
Thank you for contacting me in regard to the Emergency Economic Stabilization Act of 2008, also known as the $700 Billion Bailout Plan. I voted against this legislation both times it was presented to the United States House of Representatives. At the end of the day however, the bill was passed by Congress and the President did sign it into law.
I believe the financial crisis we now face is due in large part to the incompetence, arrogance, and overall greed of Wall Street CEOs. We should not be rewarding their bad behavior. This bill did not address the root of the problems facing our financial institutions. With no fix of the underlying regulatory failures and the next Administration only required to send "reports" to Congress, Wall Street will already have received its bailout and would have no incentive to support any new reforms down the road.
When originally reviewing this bill, my priority was to ensure that homeowners, workers, and small businesses on Main Street were protected from the complex financial problems caused by the corporate greed on Wall Street. This bill’s protections for the taxpayers are weak. The oversight board put in place has very little power over the Secretary of the Treasury, and provisions to limit CEO compensation did not go far enough.
As this crisis developed, I looked long and hard and tried to seek out the best guidance I could. I joined my Democratic and Republican colleagues and sought advice from the financial industry, including former Federal Deposit Insurance Corporation (FDIC) Chairman Bill Isaac, who served under President Reagan during the Savings & Loan crisis. Chairman Isaac, didn’t think this bill would help the struggling economy and suggested alternatives. He suggested changes to the governing rules of the Securities and Exchange Commission (SEC) suspending the mark-to-marketing accounting rule. He stressed that many banks are still in good shape, and financial markets can be bought in order quickly, shifting focus to where it should be, fixing the housing crisis and stimulating job creation. He also suggested the FDIC declare a state of emergency, issue "net worth certificates," and insure the bank’s general creditors against losses (not just depositors).
For the above reasons, I felt compelled to vote against this flawed legislation. Thank you again for contacting me on this issue. If I may be of assistance in the future on any federal matter, please do not hesitate to contact me.
Sincerely,
Tim Holden
Member of Congress
Thank you for contacting me in regard to the Emergency Economic Stabilization Act of 2008, also known as the $700 Billion Bailout Plan. I voted against this legislation both times it was presented to the United States House of Representatives. At the end of the day however, the bill was passed by Congress and the President did sign it into law.
I believe the financial crisis we now face is due in large part to the incompetence, arrogance, and overall greed of Wall Street CEOs. We should not be rewarding their bad behavior. This bill did not address the root of the problems facing our financial institutions. With no fix of the underlying regulatory failures and the next Administration only required to send "reports" to Congress, Wall Street will already have received its bailout and would have no incentive to support any new reforms down the road.
When originally reviewing this bill, my priority was to ensure that homeowners, workers, and small businesses on Main Street were protected from the complex financial problems caused by the corporate greed on Wall Street. This bill’s protections for the taxpayers are weak. The oversight board put in place has very little power over the Secretary of the Treasury, and provisions to limit CEO compensation did not go far enough.
As this crisis developed, I looked long and hard and tried to seek out the best guidance I could. I joined my Democratic and Republican colleagues and sought advice from the financial industry, including former Federal Deposit Insurance Corporation (FDIC) Chairman Bill Isaac, who served under President Reagan during the Savings & Loan crisis. Chairman Isaac, didn’t think this bill would help the struggling economy and suggested alternatives. He suggested changes to the governing rules of the Securities and Exchange Commission (SEC) suspending the mark-to-marketing accounting rule. He stressed that many banks are still in good shape, and financial markets can be bought in order quickly, shifting focus to where it should be, fixing the housing crisis and stimulating job creation. He also suggested the FDIC declare a state of emergency, issue "net worth certificates," and insure the bank’s general creditors against losses (not just depositors).
For the above reasons, I felt compelled to vote against this flawed legislation. Thank you again for contacting me on this issue. If I may be of assistance in the future on any federal matter, please do not hesitate to contact me.
Sincerely,
Tim Holden
Member of Congress
Saturday, October 4, 2008
Senator Specter's Excuse for Voting for the Bail Out
Dear Mr. Williams:
Thank you for contacting my office regarding the financial rescue legislation. I appreciate your views on this matter.
I reluctantly supported this package because the failure of Congress to act would run the risk of dire consequences, including an economic downturn which could cause more foreclosures, jeopardize retirement accounts, and further restrict credit which is necessary for small businesses to operate. I am philosophically opposed to bailouts. I think that when you have Wall Street entrepreneurs who take big risks to make big profits and they go sour, they ought to sustain the loss themselves and not look to the government for a bailout which ends up in the laps of the taxpayers. However, I supported the plan to avoid economic disaster that would extend well beyond Wall Street.
From the outset, I cautioned against Congress's rushing to judgment. When the initial proposal was made in mid-September, I wrote to Majority Leader Harry Reid and Republican Leader Mitch McConnell by letter dated September 21, 2008 urging we take the time necessary to get the legislation right. By letter dated September 23, 2008, I wrote to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke asking a series of questions which have not yet been answered. Then by letter dated September 27, 2008, accompanied by a Senate floor statement, I made a series of suggestions to the executive and legislative negotiators. Again, there has been insufficient time for a reply. Copies of these letters are available on my website: http://specter.senate.gov.
Whenever we deviate from regular order which has been developed during more than 200 years of serving our country very well, we are on thin ice. On regular order, the legislative process customarily begins with a bill which members of Congress can study and analyze. After the legislation is in hand, there are hearings with proponents and opponents of the bill and an opportunity for members to examine, really cross examine, to get to the heart of the issues and alternatives. Regular order calls for a markup in the committee of jurisdiction going over the language line by line with an opportunity to make changes with votes on those proposed modifications. Then the committee files a report which is reviewed by members in advance of floor action where amendments can be offered and debate occurs. The action by each house is then subjected to further refinement by a conference committee which makes the presentment to the President for yet another line of review. The process used to finalize this legislation drastically shortcut regular order.
The legislation passed by the Senate is enormously improved over the first Paulson proposal. The $700 billion is not to be authorized immediately, but instead there are installments of $250 billion, $100 billion at the request of the president and $350 billion more subject to congressional objection, although the latter phase may be unconstitutional under INS v. Chadha, which requires following regular legislative process with passage by both houses and Presidential approval to overrule Presidential action and perhaps inferentially legislative conditions. For protection of the taxpayers, the proposal contains a provision that if the government does not regain its money after five years, the President would be required to submit a plan for compensating the Treasury "from entities benefiting from the programs." While that provision is a far way from a guarantee or even assurances that such recovery legislation would be enacted, it gives some important comfort to the taxpayers' position.
There are provisions for multiple layers of oversight including a Financial Stability Oversight Board that will meet monthly to oversee the program. The Treasury Secretary will be required to report to Congress on a regular basis on the actions taken, along with a detailed financial statement. These reports will include information on each of the agreements made, insurance contracts entered into, and the nature of the asset purchased and projected costs and liabilities. Additional oversight will be provided by the Comptroller General (reports to Congress), a new Inspector General (audits and quarterly reports), a congressionally-appointed oversight panel (market and regulatory review, and reports to Congress on the program and the effectiveness of foreclosure mitigation efforts), and by the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) (cost estimates). A report will be required from the Secretary of the Treasury with an analysis of the current financial regulatory framework and recommendations for improvements.
There are substantial limitations on having benefits for entities which created the problem and limitations on executive pay. In cases where financial institutions sell troubled assets directly to the government with no competitive bidding and where the government receives a meaningful equity position, the legislation states that, until that equity stake is sold, executives would not get incentives "to take unnecessary and excessive risks" and would have to give up or repay bonuses or other incentives based on financial statements that "are later proven to be materially inaccurate." The bill also would prohibit "any golden parachute payment to senior executives."
The legislation is less stringent in provisions for financial institutions that sell their assets to the government through an auction. Such provisions would apply only to companies that sell more than $300 million in assets and would subject companies and employees to extra taxes.
Corporations would not be able to deduct any salary or deferred compensation of more than $500,000, and top executives would face a 20% excise tax on golden parachute payments if they left for any reason other than retirement. In evaluating limitations on executive salaries, it is relevant to note that the Institute for Public Studies found that chief executives of large U.S. companies made an average of $10.5 million last year. That is more than 300 times the pay of the average worker.
The final proposal does provide for debt insurance, as advocated for by House Republicans, but leaves it to the Secretary of the Treasury to utilize that approach so it seems unlikely that it will be implemented in light of the fact that Secretary Paulson has bluntly stated his disagreement with it. Had there been floor amendments, Congress could have structured standards for utilization of debt insurance.
Had we followed regular order with an opportunity to propose amendments, consideration could have been given to my proposal, S.2133, which would have authorized the bankruptcy courts to restructure interest and scheduling of payments. The so-called variable rate mortgages have confronted many homeowners with the surprise that original payments, illustratively, of $1200 a month were soon raised to $2000 which resulted in defaults. Individualized examination by the bankruptcy courts might show misrepresentation or even fraud to justify revising the interest payments and rearranging the payment schedule. Or consideration could have been given to Senator Durbin's proposed legislation, S.2136, which would have authorized the bankruptcy courts to reset the principal balance depending on the value of the home. I opposed that bill because I thought it would discourage future lending, and in the long run raise the cost to homebuyers. But at least, following regular order, there would have been an opportunity to consider Senator Durbin's proposal as well as my suggested legislation.
The legislation contains authority for the Treasury Secretary to compensate foreign central banks under some conditions. It provides that troubled assets held by foreign financial authorities and banks are eligible for the Toxic Assets Recover Program (TARP) if the banks hold such assets as a result of having extended financing to financial institutions that have failed or defaulted. Had there been an opportunity for floor debate, that provision might have been sufficiently unpopular to be rejected or at least sharply circumscribed with conditions.
As a step to help keep borrowers in their homes, I proposed language found in Section 119 (b) of the bill to address the concern that some loan servicers have been reluctant to modify home mortgage loan terms because they fear litigation from investors who hold securities or other vehicles backed by the mortgage in question. The loan servicers have a legal duty to the investors to maximize the return on their investments. In testimony on December 6, 2007, before the House Committee on Financial Services, Mark Pearce, speaking on behalf of the conference of State Bank supervisors, discussed a meeting with the top 20 subprime servicers. He explained that "many of them brought up fear of investor lawsuits" as a hurdle to voluntary loan modification efforts. Because the rescue legislation encourages the government to seek voluntary loan modifications, it is important to remove any impediments to such modifications. To that end, the language provides a legal safe harbor for mortgage servicers making loan modifications, if the loan modifiers take reasonable mitigation steps, including accepting partial payments from homeowners.
On reforms to prevent a recurrence of this crisis, we need to question whether the rating agencies adequately analyzed mortgage-backed securities before issuing investment-grade ratings. These agencies appear to have failed. In July of 2007, when it became apparent that ratings issued by the big three rating agencies-Moody's, S&P and Fitch- could not be relied upon, I urged the relevant committees to look into the ratings that those agencies issued in recent years regarding mortgage-backed securities. Financial institutions that issue asset-backed securities obtain ratings for such securities. The failure to issue reliable ratings misrepresented the facts and fed the ability of financial institutions to tout the value of securities even though their value was declining. Congress and the regulators need to take up the rating agencies issue, and consider whether ratings agencies that have utterly failed to detect and reflect the risks associated with the securities they were rating should be accorded any reliance or role in our financial system. Some have suggested they should be regulated and we may need to consider that.
In addition, Congress and the regulators should review "off-balance sheet" transactions and leveraging. There should be a close examination on whether banks are sufficiently transparent and providing accurate accounting that truly reflects risk and leverage. Similarly there should be a review on Credit Default Swaps (CDS), which are privately traded derivatives contracts that have ballooned to make up what is a $2 trillion dollar market according to the Bank of International Settlements. They are a fast-growing major type of financial derivative. Many experts assert that they have played a critical role in this financial crisis as various financial players believed that they were safe because they thought CDS fully insured or protected them, but the CDS market is unregulated and no one really knows what exposure everyone else has from the CDS contracts. Consideration should be given to subjecting all over-the-counter derivatives onto a regulated exchange similar to that used by listed options in the equity markets.
Overleveraging has been a contributing factor in the turmoil that now threatens our financial institutions. We have seen a massive expansion of the practice of leveraged financial institutions (banks, investment banks, and hedge funds) making investments with borrowed money. In turn, they borrow more money by using the assets they just purchased as collateral. This sequence is continued again and again. The financial system, in its efforts to deleverage, is contracting credit. They must guard against future losses by holding more capital. Deleveraging is leading to difficulty on Main Street for individuals seeking to get a mortgage or buy a car. If a financial institution is able to unload its toxic assets onto the government, it will again be able to resume its lending activities that are crucial for economic growth in the United States. Unfortunately, much of the financial crisis has arisen from miscalculations of the risks involved with purchasing large amounts of securities backed by subprime mortgages and other toxic assets. We now see a situation where we are not just talking about a handful of firms. This is a widespread problem that should be addressed by this package and in future reforms of our financial regulatory structure.
In addition, the package crafted by Senate leaders includes two notable changes from the version that was rejected by the House on Monday. It includes a tax package that was previously passed in the Senate by a vote of 93-2 on September 23, 2008, but has since been rejected by the House in a dispute over revenue offsets. It includes tax incentives for wind, solar, biomass, and other alternative energy technologies. It also includes critically important relief from the Alternative Minimum Tax, which threatens to raise the tax liability of over 22 million unintended filers in 2008 if no action is taken. Finally, the package includes a host of provisions that either expired in 2007 or are set to expire in 2008, including the research and development tax credit, rail line improvement incentives, and quicker restaurant and retail depreciation schedules. I supported the Senate-passed tax extenders bill because it struck a responsible balance on the issue of revenue raising offsets.
The package also includes a provision to temporarily increase the Federal Deposit Insurance Corporation (FDIC) insurance limit to $250,000. Currently, the FDIC provides deposit insurance which guarantees the safety of checking and savings deposits in member banks, up to $100,000 per depositor per bank. Member banks pay a fee to participate. The current $100,000 limit has been unchanged since 1980 despite inflation. This approach is supported by both Senator McCain and Senator Obama, by House Republicans, and by the FDIC Chairman Sheila Bair. Raising the cap could stem a potential run on deposits by bank customers, particularly businesses, who fear losing their money. Such fears contributed to the collapse of Washington Mutual and Wachovia Bank.
Congress has been called upon to make the best of a very bad situation. Careful oversight of the authority given to the Treasury Department will need to be undertaken, and a review of our regulatory structure will be necessary as we move forward.
Again, thank you for writing. The concerns of my constituents are of great importance to me, and I rely on you and other Pennsylvanians to inform me of your views. If you require assistance with a federal agency, please contact my state office in your area. The contact information can be found on my website at specter.senate.gov.
Sincerely,
Arlen Specter
Thank you for contacting my office regarding the financial rescue legislation. I appreciate your views on this matter.
I reluctantly supported this package because the failure of Congress to act would run the risk of dire consequences, including an economic downturn which could cause more foreclosures, jeopardize retirement accounts, and further restrict credit which is necessary for small businesses to operate. I am philosophically opposed to bailouts. I think that when you have Wall Street entrepreneurs who take big risks to make big profits and they go sour, they ought to sustain the loss themselves and not look to the government for a bailout which ends up in the laps of the taxpayers. However, I supported the plan to avoid economic disaster that would extend well beyond Wall Street.
From the outset, I cautioned against Congress's rushing to judgment. When the initial proposal was made in mid-September, I wrote to Majority Leader Harry Reid and Republican Leader Mitch McConnell by letter dated September 21, 2008 urging we take the time necessary to get the legislation right. By letter dated September 23, 2008, I wrote to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke asking a series of questions which have not yet been answered. Then by letter dated September 27, 2008, accompanied by a Senate floor statement, I made a series of suggestions to the executive and legislative negotiators. Again, there has been insufficient time for a reply. Copies of these letters are available on my website: http://specter.senate.gov.
Whenever we deviate from regular order which has been developed during more than 200 years of serving our country very well, we are on thin ice. On regular order, the legislative process customarily begins with a bill which members of Congress can study and analyze. After the legislation is in hand, there are hearings with proponents and opponents of the bill and an opportunity for members to examine, really cross examine, to get to the heart of the issues and alternatives. Regular order calls for a markup in the committee of jurisdiction going over the language line by line with an opportunity to make changes with votes on those proposed modifications. Then the committee files a report which is reviewed by members in advance of floor action where amendments can be offered and debate occurs. The action by each house is then subjected to further refinement by a conference committee which makes the presentment to the President for yet another line of review. The process used to finalize this legislation drastically shortcut regular order.
The legislation passed by the Senate is enormously improved over the first Paulson proposal. The $700 billion is not to be authorized immediately, but instead there are installments of $250 billion, $100 billion at the request of the president and $350 billion more subject to congressional objection, although the latter phase may be unconstitutional under INS v. Chadha, which requires following regular legislative process with passage by both houses and Presidential approval to overrule Presidential action and perhaps inferentially legislative conditions. For protection of the taxpayers, the proposal contains a provision that if the government does not regain its money after five years, the President would be required to submit a plan for compensating the Treasury "from entities benefiting from the programs." While that provision is a far way from a guarantee or even assurances that such recovery legislation would be enacted, it gives some important comfort to the taxpayers' position.
There are provisions for multiple layers of oversight including a Financial Stability Oversight Board that will meet monthly to oversee the program. The Treasury Secretary will be required to report to Congress on a regular basis on the actions taken, along with a detailed financial statement. These reports will include information on each of the agreements made, insurance contracts entered into, and the nature of the asset purchased and projected costs and liabilities. Additional oversight will be provided by the Comptroller General (reports to Congress), a new Inspector General (audits and quarterly reports), a congressionally-appointed oversight panel (market and regulatory review, and reports to Congress on the program and the effectiveness of foreclosure mitigation efforts), and by the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) (cost estimates). A report will be required from the Secretary of the Treasury with an analysis of the current financial regulatory framework and recommendations for improvements.
There are substantial limitations on having benefits for entities which created the problem and limitations on executive pay. In cases where financial institutions sell troubled assets directly to the government with no competitive bidding and where the government receives a meaningful equity position, the legislation states that, until that equity stake is sold, executives would not get incentives "to take unnecessary and excessive risks" and would have to give up or repay bonuses or other incentives based on financial statements that "are later proven to be materially inaccurate." The bill also would prohibit "any golden parachute payment to senior executives."
The legislation is less stringent in provisions for financial institutions that sell their assets to the government through an auction. Such provisions would apply only to companies that sell more than $300 million in assets and would subject companies and employees to extra taxes.
Corporations would not be able to deduct any salary or deferred compensation of more than $500,000, and top executives would face a 20% excise tax on golden parachute payments if they left for any reason other than retirement. In evaluating limitations on executive salaries, it is relevant to note that the Institute for Public Studies found that chief executives of large U.S. companies made an average of $10.5 million last year. That is more than 300 times the pay of the average worker.
The final proposal does provide for debt insurance, as advocated for by House Republicans, but leaves it to the Secretary of the Treasury to utilize that approach so it seems unlikely that it will be implemented in light of the fact that Secretary Paulson has bluntly stated his disagreement with it. Had there been floor amendments, Congress could have structured standards for utilization of debt insurance.
Had we followed regular order with an opportunity to propose amendments, consideration could have been given to my proposal, S.2133, which would have authorized the bankruptcy courts to restructure interest and scheduling of payments. The so-called variable rate mortgages have confronted many homeowners with the surprise that original payments, illustratively, of $1200 a month were soon raised to $2000 which resulted in defaults. Individualized examination by the bankruptcy courts might show misrepresentation or even fraud to justify revising the interest payments and rearranging the payment schedule. Or consideration could have been given to Senator Durbin's proposed legislation, S.2136, which would have authorized the bankruptcy courts to reset the principal balance depending on the value of the home. I opposed that bill because I thought it would discourage future lending, and in the long run raise the cost to homebuyers. But at least, following regular order, there would have been an opportunity to consider Senator Durbin's proposal as well as my suggested legislation.
The legislation contains authority for the Treasury Secretary to compensate foreign central banks under some conditions. It provides that troubled assets held by foreign financial authorities and banks are eligible for the Toxic Assets Recover Program (TARP) if the banks hold such assets as a result of having extended financing to financial institutions that have failed or defaulted. Had there been an opportunity for floor debate, that provision might have been sufficiently unpopular to be rejected or at least sharply circumscribed with conditions.
As a step to help keep borrowers in their homes, I proposed language found in Section 119 (b) of the bill to address the concern that some loan servicers have been reluctant to modify home mortgage loan terms because they fear litigation from investors who hold securities or other vehicles backed by the mortgage in question. The loan servicers have a legal duty to the investors to maximize the return on their investments. In testimony on December 6, 2007, before the House Committee on Financial Services, Mark Pearce, speaking on behalf of the conference of State Bank supervisors, discussed a meeting with the top 20 subprime servicers. He explained that "many of them brought up fear of investor lawsuits" as a hurdle to voluntary loan modification efforts. Because the rescue legislation encourages the government to seek voluntary loan modifications, it is important to remove any impediments to such modifications. To that end, the language provides a legal safe harbor for mortgage servicers making loan modifications, if the loan modifiers take reasonable mitigation steps, including accepting partial payments from homeowners.
On reforms to prevent a recurrence of this crisis, we need to question whether the rating agencies adequately analyzed mortgage-backed securities before issuing investment-grade ratings. These agencies appear to have failed. In July of 2007, when it became apparent that ratings issued by the big three rating agencies-Moody's, S&P and Fitch- could not be relied upon, I urged the relevant committees to look into the ratings that those agencies issued in recent years regarding mortgage-backed securities. Financial institutions that issue asset-backed securities obtain ratings for such securities. The failure to issue reliable ratings misrepresented the facts and fed the ability of financial institutions to tout the value of securities even though their value was declining. Congress and the regulators need to take up the rating agencies issue, and consider whether ratings agencies that have utterly failed to detect and reflect the risks associated with the securities they were rating should be accorded any reliance or role in our financial system. Some have suggested they should be regulated and we may need to consider that.
In addition, Congress and the regulators should review "off-balance sheet" transactions and leveraging. There should be a close examination on whether banks are sufficiently transparent and providing accurate accounting that truly reflects risk and leverage. Similarly there should be a review on Credit Default Swaps (CDS), which are privately traded derivatives contracts that have ballooned to make up what is a $2 trillion dollar market according to the Bank of International Settlements. They are a fast-growing major type of financial derivative. Many experts assert that they have played a critical role in this financial crisis as various financial players believed that they were safe because they thought CDS fully insured or protected them, but the CDS market is unregulated and no one really knows what exposure everyone else has from the CDS contracts. Consideration should be given to subjecting all over-the-counter derivatives onto a regulated exchange similar to that used by listed options in the equity markets.
Overleveraging has been a contributing factor in the turmoil that now threatens our financial institutions. We have seen a massive expansion of the practice of leveraged financial institutions (banks, investment banks, and hedge funds) making investments with borrowed money. In turn, they borrow more money by using the assets they just purchased as collateral. This sequence is continued again and again. The financial system, in its efforts to deleverage, is contracting credit. They must guard against future losses by holding more capital. Deleveraging is leading to difficulty on Main Street for individuals seeking to get a mortgage or buy a car. If a financial institution is able to unload its toxic assets onto the government, it will again be able to resume its lending activities that are crucial for economic growth in the United States. Unfortunately, much of the financial crisis has arisen from miscalculations of the risks involved with purchasing large amounts of securities backed by subprime mortgages and other toxic assets. We now see a situation where we are not just talking about a handful of firms. This is a widespread problem that should be addressed by this package and in future reforms of our financial regulatory structure.
In addition, the package crafted by Senate leaders includes two notable changes from the version that was rejected by the House on Monday. It includes a tax package that was previously passed in the Senate by a vote of 93-2 on September 23, 2008, but has since been rejected by the House in a dispute over revenue offsets. It includes tax incentives for wind, solar, biomass, and other alternative energy technologies. It also includes critically important relief from the Alternative Minimum Tax, which threatens to raise the tax liability of over 22 million unintended filers in 2008 if no action is taken. Finally, the package includes a host of provisions that either expired in 2007 or are set to expire in 2008, including the research and development tax credit, rail line improvement incentives, and quicker restaurant and retail depreciation schedules. I supported the Senate-passed tax extenders bill because it struck a responsible balance on the issue of revenue raising offsets.
The package also includes a provision to temporarily increase the Federal Deposit Insurance Corporation (FDIC) insurance limit to $250,000. Currently, the FDIC provides deposit insurance which guarantees the safety of checking and savings deposits in member banks, up to $100,000 per depositor per bank. Member banks pay a fee to participate. The current $100,000 limit has been unchanged since 1980 despite inflation. This approach is supported by both Senator McCain and Senator Obama, by House Republicans, and by the FDIC Chairman Sheila Bair. Raising the cap could stem a potential run on deposits by bank customers, particularly businesses, who fear losing their money. Such fears contributed to the collapse of Washington Mutual and Wachovia Bank.
Congress has been called upon to make the best of a very bad situation. Careful oversight of the authority given to the Treasury Department will need to be undertaken, and a review of our regulatory structure will be necessary as we move forward.
Again, thank you for writing. The concerns of my constituents are of great importance to me, and I rely on you and other Pennsylvanians to inform me of your views. If you require assistance with a federal agency, please contact my state office in your area. The contact information can be found on my website at specter.senate.gov.
Sincerely,
Arlen Specter
Tuesday, September 30, 2008
Financial Market Crisis Solution
Dear Congressmen and Senators;
I would like Congress to pass a Confidence Insurance Bill to insure accounts for up to $500,000. The Federal Insurance Deposit Corporation (FDIC) should increase its insurance on all bank accounts to $500,000 and provide Umbrella Insurance for Securities Investor Protection Corporation (SIPC), the National Credit Union Administration (NCUA), and the Savings Association Insurance Fund (SAIF) for up to $500,000.
The problem in the financial markets is not the amount of money available. The Fed can always pump money into the system. The problem is the confidence to accept new loans because people are afraid to keep deposits in financial institutions. Increasing insurance will increase confidence in the system. That will loosen the short term commercial paper problem in the money market.
Long Term Problem
The long term problem that I think congress should fix is one of home finance education. People my age have the advantage of experience and some type of education in the area of contracts and loans. I am sorry to say that many people get their education from commercials today. This is why our federal and state governments have to play a role in educating people in home finance.
When I was in public school, they taught us how to write a check, take out a loan, figure out how to make a home budget, and etc. I assume that they did this in schools when my children were in public school. It took a predatory loan situation involving using my daughter’s car as collateral to get me to inquire into this education in our public schools. They don’t teach home finance to all students in public schools anymore. In fact, the loan companies get graduation list and mail loan applications to students. This is why people at age 21 already have $10,000 to $50,000 in credit card debt. They are not taught anything about savings and investment. Most colleges do not require such training.
As a result, we now have generations of people who believe that a credit card is an extension of their paycheck. Savings is something that "lovers of money" do. This created a nation of people who are ripe for picking by loan sharks posing as legitimate business people. This leads to a lack of confidence in the nation’s financial system. Without confidence, the system cannot work.
A government is supposed to protect its people from such sharks. That is why President Roosevelt put in place regulations to shield people from this type of business. The Depression of the 1930 was caused by the 1920s home loans which led to the stock market crash of 1929.
From President Reagan to President Bush, the loan, investment banking, and commercial banking laws were deregulated. This President Bush believes in "Free Markets" and people can do what they want. Then last week, Bush decided that Socialism for the people at the top was the best policy to follow by giving them a $700 Billion Bailout. This will not fix the problem. This will just bail out the corporations that employed the loan sharks.
The System Works on Confidence
We now have a generation of Americans who thinks that the solution to everything is to borrow more money. How can you fix a problem of confidence when all you know how to do is borrow? The reason why "In God We Trust" is on our money is because the banking system works on faith. If you have no faith in the system, the system will not work. Deregulation allowed business people to take advantage of the public. These same people sold these bad loans to Wall Street who looked the other way. Wall Street sold them back to the banks, insurance companies, mutual funds, colleges, endowments, and other financial institutions. People did not get paid from these bad loans.
Europe and Asian business people started laughing at us. We had a reputation of being the best in finance until two weeks ago. Now European banks are failing and Asia is dumping western companies. Everyone lost faith in the system. They stopped investing. This brought the money markets to a halt. Now people may not get their pay checks. We may have another Great Depression soon.
To fix the problem, increase our insurance on our accounts, so that small business people as well as small public corporations can have confidence in the system which will lead to the loosening of the credit markets.
Sincerely,
Darnell L. Williams
I would like Congress to pass a Confidence Insurance Bill to insure accounts for up to $500,000. The Federal Insurance Deposit Corporation (FDIC) should increase its insurance on all bank accounts to $500,000 and provide Umbrella Insurance for Securities Investor Protection Corporation (SIPC), the National Credit Union Administration (NCUA), and the Savings Association Insurance Fund (SAIF) for up to $500,000.
The problem in the financial markets is not the amount of money available. The Fed can always pump money into the system. The problem is the confidence to accept new loans because people are afraid to keep deposits in financial institutions. Increasing insurance will increase confidence in the system. That will loosen the short term commercial paper problem in the money market.
Long Term Problem
The long term problem that I think congress should fix is one of home finance education. People my age have the advantage of experience and some type of education in the area of contracts and loans. I am sorry to say that many people get their education from commercials today. This is why our federal and state governments have to play a role in educating people in home finance.
When I was in public school, they taught us how to write a check, take out a loan, figure out how to make a home budget, and etc. I assume that they did this in schools when my children were in public school. It took a predatory loan situation involving using my daughter’s car as collateral to get me to inquire into this education in our public schools. They don’t teach home finance to all students in public schools anymore. In fact, the loan companies get graduation list and mail loan applications to students. This is why people at age 21 already have $10,000 to $50,000 in credit card debt. They are not taught anything about savings and investment. Most colleges do not require such training.
As a result, we now have generations of people who believe that a credit card is an extension of their paycheck. Savings is something that "lovers of money" do. This created a nation of people who are ripe for picking by loan sharks posing as legitimate business people. This leads to a lack of confidence in the nation’s financial system. Without confidence, the system cannot work.
A government is supposed to protect its people from such sharks. That is why President Roosevelt put in place regulations to shield people from this type of business. The Depression of the 1930 was caused by the 1920s home loans which led to the stock market crash of 1929.
From President Reagan to President Bush, the loan, investment banking, and commercial banking laws were deregulated. This President Bush believes in "Free Markets" and people can do what they want. Then last week, Bush decided that Socialism for the people at the top was the best policy to follow by giving them a $700 Billion Bailout. This will not fix the problem. This will just bail out the corporations that employed the loan sharks.
The System Works on Confidence
We now have a generation of Americans who thinks that the solution to everything is to borrow more money. How can you fix a problem of confidence when all you know how to do is borrow? The reason why "In God We Trust" is on our money is because the banking system works on faith. If you have no faith in the system, the system will not work. Deregulation allowed business people to take advantage of the public. These same people sold these bad loans to Wall Street who looked the other way. Wall Street sold them back to the banks, insurance companies, mutual funds, colleges, endowments, and other financial institutions. People did not get paid from these bad loans.
Europe and Asian business people started laughing at us. We had a reputation of being the best in finance until two weeks ago. Now European banks are failing and Asia is dumping western companies. Everyone lost faith in the system. They stopped investing. This brought the money markets to a halt. Now people may not get their pay checks. We may have another Great Depression soon.
To fix the problem, increase our insurance on our accounts, so that small business people as well as small public corporations can have confidence in the system which will lead to the loosening of the credit markets.
Sincerely,
Darnell L. Williams
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