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In Major Economic Speech, Sen. Menendez Reacts to Paulson Announcement, Outlines Proposals to Address Economic Crisis

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Date:
Location: Newark, NJ


IN MAJOR ECONOMIC SPEECH, SEN. MENENDEZ REACTS TO PAULSON ANNOUNCEMENT, OUTLINES PROPOSALS TO ADDRESS ECONOMIC CRISIS

Member of Banking Committee says Main Street, not just Wall Street, must be helped

Today, U.S. Senator Robert Menendez (D-NJ), a member of the Senate Banking Committee, delivered a major speech on the economy, reacting to Treasury Secretary Henry Paulson's remarks from earlier in the day and laying out proposals geared toward helping Main Street in this economic crisis. Senator Menendez said that he is pleased that the Bush administration is finally looking at long-term solutions but said there are big questions about the costs and benefits to taxpayers that must be answered. He also stressed the vital need to help homeowners along with financial institutions and to stimulate the economy. His proposals include bankruptcy loan modifications, freezing foreclosures on mortgages owned by Fannie Mae and Freddie Mac, small business loan programs, and a new economic stimulus package. He also proposed programs to help those who have lost jobs, including many in New Jersey, as they search for and transition to new employment.

On Paulson's announcement:

"We're still waiting for details, but I am pleased to see the Administration finally looking past the next short-term crisis and looking to a solution to help in this difficult time. I do, however, have some concerns about how priorities will be made and where Main Street and homeowners will be on that list.

"So while this proposal is an interesting idea, and it's clear there needs to be leadership, the stakes are incredibly high. In this unprecedented situation, there are some serious questions that need to be asked. We have to be extremely careful if we start to create a system where gains are private, and losses are public, where businesses can keep their profits but the taxpayers have to pay for their debts. Big institutions that made bad decisions should not be immune from the consequences of those actions—they shouldn't be able to avoid the consequences of their greed when the value of everyone's home has suffered as a result—especially when my Republican friends in Congress were arguing months ago that homeowners should suffer the consequences of any bad decisions.

"Here are some other questions: will a new institution be set up? Worst case, scenario, how much could this cost the taxpayers? Saying that hundreds of billions of dollars are needed to be infused into the system is not the same as saying hundreds of billions of dollars are going to be the cost to the taxpayers. They are the bystanders in this crash and they will get hurt the most.

"Who would qualify—just companies that pose systemic risk or any company with a large amount of troubled assets? How will the government value the assets it takes onto its books? Even if this plan stabilized the situation, what would its long-term effects be?

"And most, importantly, what do the taxpayers get in return? The proposal could result in the most direct commitment of taxpayer funds that our country has seen—there has to be a balance, a fair tradeoff, and taxpayer protections.

Some people blame homeowners for signing loans they couldn't afford or didn't understand but want to tell them ‘tough luck' when they look to the government for help. But when the institutions that bought these loans—loans they knew were either overleveraged or deceptive—start to lose their roofs, we bail them out. From a homeowners perspective, how is that fair?"

Menendez on his own proposals:

"We have to put people first—not just companies—we have to put people first.

"To that end, there's other legislation we should consider that will in fact put people first as it shores up the housing market. Our goal should be to save a million homes from foreclosures—the goal of 400,000 in the Hope for Homeowners plan just simply doesn't cut it anymore. I also want to quickly mention three steps that can get us there: changing the bankruptcy rules, loans for small businesses, and a new economic stimulus package.

• "First, the best way to not only stem this crisis but help those on Main Street is to help prevent foreclosures. Changing the bankruptcy law to give judges the discretion to modify loan terms for primary residences. Right now, the law allows for modifying loan terms for secondary residences like vacation homes but not primary residences. We tried to make this change in Congress earlier this year, but were blocked—we cannot wait any longer. This provision is the only way to help a significant number of homeowners without costing taxpayers a dime. It would help more than 600,000 families stuck in bad loans keep their homes.

"Preventing foreclosure also means loan modifications. Fannie Mae and Freddie Mac should temporarily freeze foreclosures on loans they hold for 90 days. With the government in control, they can freeze foreclosures and turn them into performing mortgages that limit taxpayer exposure.

• "Second, we should institute a loan program to help jumpstart one of the most important economic engines in America: small businesses. Because of this severe credit crunch, many small businesses that are just starting out and even many well-established businesses are having trouble finding credit on the private market. Emergency loans should be available for small businesses along the lines of what we provide during a natural disaster. This is a pretty big financial storm, and temporary relief can make a big difference.

• "Third, it's time for a second economic stimulus package, targeted to create hundreds of thousands of good-paying jobs and prevent cuts in critical services for millions of Americans. The Democratic package currently being discussed would fund infrastructure projects, an energy aid program, as well as some form of unemployment insurance extension.

• "I also think we need to think about those on Wall Street who have are going to lose their jobs. In New Jersey alone, between a quarter and a third of New Jersey's economy depends on Wall Street, either directly or indirectly.

"Many of these families are going to be living on severance pay, at best, for a while. So we should consider providing some form of tax relief for COBRA and severance pay to tide people over. Many families are going to lose health insurance as a result of this downturn—many families with children are going to be grateful that they live in a state that provides health insurance for many children. But we have to help—this economic storm is crossing America but it made landfall in New York and New Jersey, and we must provide relief."

Full text of speech:

Thank you Bill, and thanks to all of you for having me here.

I'm confident that I would not be speaking here today—I wouldn't have been able to go from the small tenement apartment I grew up in to the halls of the United States Senate—if it weren't for our federal government's commitment to educating our young people, no matter what neighborhood they grow up in, no matter how much money their parents make, no matter what their ethnicity or the color of their skin.

I was the first person in my family to attend college, and then law school, thanks to Pell Grants and Perkins loans.

The idea was, if you worked hard, played by the rules, applied your God-given talent to the fullest, then you would succeed. That's more than just the idea behind our system of education—it's the fundamental definition of the American Dream.

ECONOMY

Unfortunately, the doors to achievement are in serious danger of being locked—not just sometime down the line: immediate danger.

So today, I have to speak about something else besides education. I have to speak about our economy—because in order for the next generation to have the chance to study and the chance to succeed, we have to act fast to prevent a major collapse.

Right now, we're faced with the one of the most perilous economic times any of us have ever seen. Over the past several months, major financial institutions have fallen, the stock market has seen its biggest drop since September 11th, 2001, home foreclosures are rising at the fastest rate since the Great Depression, and since the beginning of the year, more than 600,000 Americans have lost their jobs.

Students graduate with higher degrees and find they have trouble finding a job, have trouble getting a loan to start a business, find homeownership out of reach and hope for the future in short supply

The state of our economy is more than unfortunate—but how it got this way wasn't an accident. It all comes back to the highest levels of government, and what this administration's attitude has been toward the financial services industry and the markets in general.

For eight years, the Bush Administration has turned its back on regulation and oversight.
Instead of being a cop on the beat, patrolling corporate accounting, the Administration disastrously allowed Wall Street to police itself. Instead of oversight of mortgage lenders, the Federal Reserve looked the other way—so much so, that even though they've had the power to stop predatory lending for 14 years, they didn't use that power until this July. In short, instead of keeping an eye on the regulatory system that had kept our financial system on sound footing for seventy years, the administration and its Republican allies recklessly dismantled it. They passed it off as trusting capitalism—but really what they were doing was capitalizing on our trust. It was a level of incompetence that has left us on the brink of an economic meltdown.

Today, to cover up for eight years of cronyism, criminality and neglect, the standard-bearer of the Republican Party, Senator John McCain, is still claiming that, quote, "the fundamentals of the economy are strong."

While housing foreclosures are defying gravity, he continues to make statements that defy reality.

You can't have over 6% unemployment—8% among Latinos—and say the fundamentals of the economy are strong.

You can't see the millions of Americans in foreclosure, the 9,000 who are at risk of losing their homes every single day, and tell them that the fundamentals of the economy are strong.

You can't look at the greatest deficit and the greatest debt the nation has ever had, the highest prices for gas and groceries we've ever seen, a price tag of $10 billion a month for a war in Iraq that should have never been waged, and look the average American in the eye and tell them, that when it comes to our economy, things are so strong that nothing needs to change.

If we have any hope of fixing this crisis, we've got to recognize that the fundamentals of the economy are not where they need to be. The time for denial is over. The time for ad-hoc solutions is over. The time for real leadership is here.

So today I must take this opportunity to lay out what that means—and to comment on the proposals from the Administration, including what Secretary Paulson outlined today in his remarks. Slogans won't prop up the economy and pointing fingers won't give 600,000 Americans their jobs back. What we need is a plan.

Far too much needs to be done to mention it all here—in particular, getting ahead of the next crisis, and implementing credit card reform. As a nation, we have to be better about seeing the developing storms and adjusting our regulations and plan—we cannot simply wait for the destruction and clean up the mess.

And government certainly can't do it all; the heart of any economic recovery has to be the innovation and hard work that New Jerseyans and all Americans do every day. But I want to mention a few specific steps the federal government needs to take, immediately, to get the economy back on track.

PLAN

First, it's time we recognized one fact: the heart of this downturn is the housing market. It's not the only problem, but I like to use the analogy of medical treatment of a patient after a car crash: first we need to stabilize the patient in order to operate.

Before I mention my proposals for stabilizing the housing market and the broader economy, I want to discuss the Administration's proposal, announced today, to authorize the government to buy bad assets at deep discounts from banks and other institutions. We're still waiting for details, but I am pleased to see the Administration finally looking past the next short-term crisis and looking to a solution to help in this difficult time. I do, however, have some concerns about how priorities will be made and where Main Street and homeowners will be on that list.

So while this proposal is an interesting idea, and it's clear there needs to be leadership, the stakes are incredibly high. In this unprecedented situation, there are some serious questions that need to be asked. We have to be extremely careful if we start to create a system where gains are private, and losses are public, where businesses can keep their profits but the taxpayers have to pay for their debts. Big institutions that made bad decisions should not be immune from the consequences of those actions—they shouldn't be able to avoid the consequences of their greed when the value of everyone's home has suffered as a result—especially when my Republican friends in Congress were arguing months ago that homeowners should suffer the consequences of any bad decisions.

Here are some other questions: will a new institution be set up? Worst case, scenario, how much could this cost the taxpayers? Saying that hundreds of billions of dollars are needed to be infused into the system is not the same as saying hundreds of billions of dollars are going to be the cost to the taxpayers. They are the bystanders in this crash and they will get hurt the most.

Who would qualify—just companies that pose systemic risk or any company with a large amount of troubled assets? How will the government value the assets it takes onto its books? Even if this plan stabilized the situation, what would its long-term effects be?

And most, importantly, what do the taxpayers get in return? The proposal could result in the most direct commitment of taxpayer funds that our country has seen—there has to be a balance, a fair tradeoff, and taxpayer protections.

Some people blame homeowners for signing loans they couldn't afford or didn't understand but want to tell them ‘tough luck' when they look to the government for help. But when the institutions that bought these loans—loans they knew were either overleveraged or deceptive—start to lose their roofs, we bail them out. From a homeowners perspective, how is that fair?

We have to make sure that after all is said and done, the taxpayers and millions of troubled homeowners get some relief.

It isn't right that taxpayers bear all the losses and bear all the risk. Bailing out only the top is offering the imperfect solution of trickle-down economics. We have to make sure that in any deal, Main Street gets as much as Wall Street.

Had the Administration finally woken up, when I said in March of 2007 that we faced a tsunami of foreclosures and had to act, I wonder how things might have been different. Wall Street, there is no doubt, is in trouble and our financial stability is in the balance. And the trickledown effect from this would inevitably cause harm in almost every American home—that is why we have to act and act fast. But while we rescue Wall Street from their profit seeking failures, we need to rescue homeowners, many of whom are in trouble through no fault of their own. Let's not forget, when there's a foreclosure in our neighborhood, it affects all our homes, and the greater economy. Foreclosures are at the core of a crisis that affects us all.

And let me be very clear about this: if we plan to pursue the idea of a multi-hundred-billion-dollar federal corporation taking on these bad assets, there must be regulatory reform as well, and those regulations must be robustly enforced. We shouldn't wait, as Secretary Paulson suggests, for a debate for another day.

So we have to keep all those questions in mind as we're deciding whether or not to take the big step of having the public get involved in a big way.

The administration has only left us with bad choices—choices we have to make immediately to avoid a global economic meltdown. They've stoked and neglected this crisis for over 7 years—we have to choose in 7 days.

As we make those choices, we have to put people first—not just companies—we have to put people first.

To that end, there's other legislation we should consider that will in fact put people first as it shores up the housing market. Our goal should be to save a million homes from foreclosures—the goal of 400,000 in the Hope for Homeowners plan just simply doesn't cut it anymore. I also want to quickly mention three steps that can get us there: changing the bankruptcy rules, loans for small businesses, and a new economic stimulus package.

First, the best way to not only stem this crisis but help those on Main Street is to help prevent foreclosures. Changing the bankruptcy law to give judges the discretion to modify loan terms for primary residences. Right now, the law allows for modifying loan terms for secondary residences like vacation homes but not primary residences. We tried to make this change in Congress earlier this year, but were blocked—we cannot wait any longer. This provision is the only way to help a significant number of homeowners without costing taxpayers a dime. It would help more than 600,000 families stuck in bad loans keep their homes.

Preventing foreclosure also means loan modifications. Fannie Mae and Freddie Mac should temporarily freeze foreclosures on loans they hold for 90 days. With the government in control, they can freeze foreclosures and turn them into performing mortgages that limit taxpayer exposure.

Second, we should institute a loan program to help jumpstart one of the most important economic engines in America: small businesses. Because of this severe credit crunch, many small businesses that are just starting out and even many well-established businesses are having trouble finding credit on the private market. Emergency loans should be available for small businesses along the lines of what we provide during a natural disaster. This is a pretty big financial storm, and temporary relief can make a big difference.

Third, it's time for a second economic stimulus package, targeted to create hundreds of thousands of good-paying jobs and prevent cuts in critical services for millions of Americans. The Democratic package currently being discussed would fund infrastructure projects, an energy aid program, as well as some form of unemployment insurance extension.

I also think we need to think about those on Wall Street who have are going to lose their jobs. In New Jersey alone, between a quarter and a third of New Jersey's economy depends on Wall Street, either directly or indirectly.
Many of these families are going to be living on severance pay, at best, for a while. So we should consider providing some form of tax relief for COBRA and severance pay to tide people over. Many families are going to lose health insurance as a result of this downturn—many families with children are going to be grateful that they live in a state that provides health insurance for many children. But we have to help—this economic storm is crossing America but it made landfall in New York and New Jersey, and we must provide relief.

CONCLUSION

These are vital structural changes we need to make, and some of the questions we need to keep in mind, as we move forward. This is a key time to be on the Banking Committee, and I look forward to working with Chairman Chris Dodd this weekend and next week to deliver the changes we need.

Apart from structural changes, our recovery depends on our power to innovate, and our economic future depends on the education our young people get today.

I'm thrilled to see in this audience educators, businessmen and women, leaders from throughout our community. When there's an economic crisis, the government may sound the alarm, and send out fire engines to put out the fire, but when the smoke clears, you are the ones who are working hardest to rebuild it.

John F. Kennedy liked to say that in Chinese, the word "crisis" is composed of two characters: one is "danger" and the other is "opportunity."

We all have before us a great opportunity, an opportunity to prepare our students and strengthen our economy so America remains a leader in the world. A nation that is united in its purpose can answer that challenge, as we have so many times throughout our history.

The time has come to make a robust, national commitment to the education of our youth at all levels, from kindergarten through graduate school, from technological institutes in our inner cities to centers of agricultural research in the heartland—and a commitment to some of the more structural changes that will rebuild our economy and make that education possible.

So many people are depending on all of us. If we keep up the hard work, and believe in what we're working for, then progress is always within our reach, change is always within the realm of possibility, and a better world is ours for the making.

Thank you very much.


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