Following is an e-mail letter I received from Senator Wayne Allard:
October 10, 2008…
Thank you for writing to me about the recent troubling activity on Wall Street. I understand your concern and appreciate your taking the time to contact me.
The U.S. economy began facing challenges last year due in large part to problems in the subprime mortgage market. The severity of the problems became quite apparent in March 2008, when Bear Stearns collapsed. At the beginning of September 2008, the federal government took control of the two housing government sponsored enterprises, Fannie Mae and Freddie Mac. Unfortunately, the difficulties that began in the subprime mortgage market had spread to other market sectors, causing Lehman Brothers to file for bankruptcy and Merrill Lynch to be bought out by Bank of America. The Federal Reserve and Treasury intervened to prevent a bankruptcy filing by AIG and took over the company. Additional firms showed weakening under market pressures.
These events touched off a significant crisis of confidence in our financial markets. Without capital flowing freely, illiquidity left them virtually frozen. The frozen capital markets represent a threat not only to the financial sector, but the business sector and entire economy as well.
To prevent a financial crisis, Treasury Secretary Paulson and Federal Reserve Chairman Bernanke released a proposal to allow the federal government to purchase up to $700 billion of the troubled, illiquid assets. These assets would be held by the government for some period of time, after which they would be sold, potentially for a profit. The Treasury Department believes this will promote market stability and help protect American families and the U.S. economy by fundamentally and comprehensively addressing the root cause of our financial system’s current distress.
After receipt of the initial Treasury plan Congress made several key changes. While the legislation provides the Secretary of the Treasury with the authority to use up to $700 billion to purchase troubled assets, the money is not available all at once. An initial amount of $250 billion is available followed by installments of $100 billion and $350 billion, upon approval of the President. The legislation establishes a Department of the Treasury insurance program for distressed assets that guarantees those assets, including mortgage backed securities, that were issued before March 18, 2008. Treasury would collect premiums from financial institutions that chose to participate. Additionally, the bill increases the Federal Deposit Insurance Corporation (FDIC) limit from $100,000 to $250,000 through 2009. Another adjustment made was a limit placed on executive compensation or “golden parachutes” for firms in which the government acquires a significant stake. To address concerns over long term accountability, an oversight board comprised of federal banking regulators is established and a provision in the package states that if, after five years, the government has incurred losses from the program, the President must put forth a proposal for recovering government assets from firms that profited from federal assistance.
After long and careful deliberation I voted against the bailout package. Taxpayers are and have always been my number one priority. I have serious concerns that Congress held no hearings in creating this $700 billion package, nor did it use a deliberative process to provide a reasonable assurance that this proposal would even work. I am unwilling to leave a huge legacy of debt for generations to come without confidence that it would be worth the price. I have always believed that the government should live within its means and thus have opposed increasing the federal debt limit. The bill before Congress would significantly increase the national debt.
I have seen no evidence that the Emergency Economic Stabilization Act is in the best long term interests of taxpayers and the economy, and I also strongly oppose the additional spending provisions rolled into the bill. We shouldn’t spend this kind of taxpayer money on assumptions and guesswork. I believe that Congress can find a way to unfreeze the credit markets without unfairly penalizing American families for the greed and mismanagement on Wall Street.
Congress should act to preserve our free-market tradition. We have never propped up failed businesses on Main Street; we should not prop up failure and malfeasance on Wall Street. During my remaining time in the Senate I will continue to advocate for this belief.
United States Senator