Emergency Economic Stabilization Act of 2008

EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 -- (House of Representatives - September 29, 2008)

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Ms. JACKSON-LEE of Texas. Madam Speaker, the Constitution of the United States is present to protect Main Street. The full faith and credit of this constitutional document will protect the men and women of America.

I will not stand here today and suggest that we do not have some challenges. I frankly believe that the bill we have before us is a miracle, and I thank the leadership for their strength in recharacterizing the two-page bill that anointed the Secretary of the Treasury that came from the White House.

But my question is, where was the Securities and Exchange Commission? Where was the FDIC, the Federal Reserve? Under the control and domination of this administration. So when we ask the question why, we need to look back at those who controlled the policies of America for the last 8 years. Where was the Secretary of the Treasury?

But I don't stand here to cast aspersions. I will say to you that this has been diagnosed, but America needs a second opinion. There is no enforcement in this legislation. The Financial Stability Oversight Board, no enforcement provisions; the Congressional Board, no enforcement provisions; the Inspector General, no enforcement provision. There are no criminal penalties for those who have been charged with malfeasance and criminal activities, no barring of individuals who are convicted of malfeasance and criminal activities from doing business with the United States.

So, in essence we give this money, and who does it go to? No listing by the Secretary of the Treasury where the first dollar will go. No separating a certain amount to help those in foreclosure in America in the small towns, hamlets and villages, when in fact we know that we could establish a Homeowners Loan Corporation and help those on Main Street.

Yes, I do believe we are challenged. But I believe we can come back, watch the markets, and work forward. This is a bill that hands out; it doesn't hand up. I ask my colleagues to consider the fact that we are protecting Main Street, not Wall Street.

Ms. JACKSON-LEE of Texas. Madam Speaker, I rise with great concern regarding H.R. 3997, the Emergency Economic Stabilization Act of 2008. I would like to thank Chairman of Financial Services BARNEY FRANK for bringing this important piece of legislation to the floor. I also rise with a sense of the solemness of this moment. However, I rise today with the confidence that our system of Government is strong and the constitutional protections of the full faith and and credit of our Government will protect Main Street America while we reform America's Wall Street.

Leadership has worked without tiring to alter the language provided by the administration for the betterment of the American people. Our leadership has created a miracle by modifying the 2 page document sent by the Treasury Department last week into a 109 page document. I thank leadership for that. We toiled long into the night to incorporate Democratic principles--many of which have still not been included.

Where was the FDIC? Where was the SEC? Where was the Federal Reserve?

I have worked with leadership to offer consistent amendments that would have strengthened the punitive measures over the past week to change the administration's proposal to make it more encompassing, effective, and better for the American people. While the present legislation is impressive, it is also impressive regarding what is absent from this legislation. For example, the legislation is devoid of bankruptcy restructuring, devoid of real enforcement, and devoid of any meaningful judicial review. These are all issues that I have been very concerned about.

In fact, it is because I am concerned and desire that the maximum number of Americans get relief from this bill, that I offered amendments yesterday. To ensure that this bill provides relief for Americans, I offered the following amendments:

Set aside $125 million (in fact the amount could been more) as a firm allotment to address the question of individual American homeowners facing foreclosure in light of the absence of a bankruptcy provision;

Add Sense of the Congress language that Bankruptcy Code should be reviewed and amended in the future to permit bankruptcy judges to address the question of individual home mortgage restructuring;

Allow the courts to exercise rigorous judicial review and provide those courts with the discretion to grant injunctive and/or equitable relief if the courts determine that such relief would not destabilize financial markets;

Create a new, independent commission to exercise oversight over the current financial situation with enforcement powers;

Allow criminal liability for persons or corporate entities that have engaged in criminal malfeasance;

Bar persons/corporate entities found to have engaged in criminal malfeasance with malicious intent in financial markets from doing business with the Federal Government in the future.

THE BILL IN CONTEXT

Segments of the economy have the ability to be strong. America needs to employ its full faith and credit to back its commitments. I feel strongly that this bill should have set aside $125 million to help homeowners who are facing mortgage foreclosure. This is important because it is money that would have been used to help the aggrieved: Main Street.

It is important to note that all five big investment firms--Bear Sterns, Merrill Lynch, Lehman Brothers, Goldman Sachs, and Morgan Stanley have altogether disappeared or morphed into regular banks. Given this phenomenon, the question arises and no one has or can seem to explain: Is this bailout still necessary?

Dr. James K. Gailbraith, of the University of Texas, wrote in the Washington Post on September 25, 2008, that the bailout is not necessary because the point of the bailout has been articulated as buying assets that are illiquid ``but not worthless. But regular banks hold assets like that all the time. They are called `loans.'

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that.''

Deposit insurance presently is capped at $100,000. We should have considered raising the FDIC insurance cap, increased the amount of capitalization in the FDIC corporation, increased the amount of reserves in the Treasury Department.

Dr. Galbraith wrote, ``In Texas, recovery from the 1980s oil bust took 7 years and the pull of strong national economic growth. The present slump is national, and it can't be cured by legislation alone. But it could be resolved in 3 years, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions, and decide when vacant, degraded properties should be demolished.''

As I consider this piece of legislation, three of the themes are consistent throughout it are (1) where is the enforcement; (2) who receives the first dollar; and (3) what is the disastrous and catastrophic event that will occur if this bill is not passed today? Because of the complexity of the nature and extent of the problems within the financial markets, I would rather that Congress carefully review and consider the right solution.

Congress should order the SEC, FDIC, the Federal Revenue Service to use their current powers and prevent the consequences with some extraordinary powers such as cited above regulating lifting the caps at the FDIC and allowing the SEC to suspend certain accounting practices; all this can be done without the massive bailout all at once.

This legislation was considered at 10 p.m. in a closed rule last night; debate on the rule immediately transpired with fewer than 10 members participating at approximately midnight. In less than 10 hours, members are expected to have read, understand, and speak intelligently upon this complex piece of legislation.

When we consider the magnitude and extent of the financial problem, we must consider how America has gotten here in the first place. During the past administration, America underwent a housing boom. Depressed housing markets around the country experienced unparalleled increases in price. Middle-class, working Americans sought to achieve the American dream by purchasing a home.

At the same time, banks and financial institutions were selling unsophisticated consumers unconventional and creative mortgage financing alternatives. Financial institutions were apt to qualify borrowers for more house than they could afford. Financial institutions were lending subprime mortgages and engaged in predatory lending. Adjustable rate mortgages, which had an interest rate that would adjust within 1, 3, or more years, became more common within the last 7 years. Interest-only names

became common names within the first home purchaser's market. Borrowers who were considered a credit risk were allowed to purchase home. The banks and financial institutions were not paying attention to a borrower's credit rating, their ability to pay, or a borrower's potential to default.

PRESENT FINANCIAL SITUATION

According to Bloomberg, this morning stocks around the world tumbled, the euro and the pound plunged and bonds rose as governments raced to prop up banks. Hong Kong's Hang Seng Index plunged 4.31 percent to 17,876.41, and Tokyo's benchmark Nikkei lost 1.3 percent to close at 11,743.61.

Europe's Dow Jones Stoxx 100 Index declined 3.2 percent. MSCI Asia Pacific Index lost 2.7 percent after Dexia SA sank the most since it began trading 12 years ago, and ICICI Bank Ltd. retreated to a 2-year low. Futures on the S&P's 500 Index fell 1.7 percent as Wachovia Corp. tumbled 91 percent. Citigroup Inc. agreed to buy the company's banking operations in a transaction the Federal Deposit Insurance Corp. helped arrange.

The British pound dropped the most against the dollar in 15 years, and the euro weakened after European governments stepped in to rescue Bradford & Bingley Plc, Fortis, and Hypo Real Estate Holding AG.

So far, the $700 billion package to shore up banks hammered out by Treasury Secretary Henry Paulson and congressional leaders over the weekend failed to convince investors it will shore up banks saddled with growing mortgages losses. The crisis that began with bad home loans to subprime borrowers in the U.S. is threatening to push the global economy into a recession as consumers lose confidence as banks cut back on lending.

It is difficult to have a $700 billion dollar rescue bill when the President failed to sign for $60 billion dollars to provide economic stimulus to working-class Americans.

In September, Fannie Mae, Freddie Mac, and Lehman Brothers all filed for bankruptcy. Merrill Lynch agreed to sell itself to Bank of America, MG was taken over by the Treasury, and Washington Mutual was seized by regulators in the biggest U.S. bank failure in history. Financial institutions worldwide have reported more than $550 billion of credit losses and asset writedowns since the beginning of 2007, according to data compiled by Bloomberg.

Even after the announcement of the rescue package, the worldwide markets are still declining. I fail to see the specific catastrophic events/consequences that the U.S. public will experience if this bailout does not occur.

I am cautious because I believe that we as members of Congress need to take the time to craft a real recovery plan for our economy, a plan that puts people first and addresses our multiple economic crises, including good jobs, affordable housing, health care, retirement security, infrastructure, and disaster relief (Katrina, Ike, etc.).

Last week, New York Mayor Michael Bloomberg announced $1.5 billion in public spending cuts. I do not believe that this was prudent. Schools, fire departments, police stations, parks, libraries, and water projects are getting cut. The persons who are feeling the effects of this economic decision are the more vulnerable populations, the elderly, the children, and the working- class. Mayor Bloomberg's reaction is not the solution either.

It is clear that something must be done, but this bill does not provide the answer that America seeks.

Recently, Congress sent an economic stimulus package to the President that would have provided $60 billion dollars in relief to middle-class working Americans. The President vetoed this bill. However, the Administration sends to us today this bill requesting $700 billion dollars to bail out Wall Street.

I would offer that we need to restructure our present financial system. However, the kinds of reform that I believe are necessary are not included in this bill. For example, the Federal Reserve itself needs to be reformed. As members of Congress we should be looking at establishing greater oversight, preventing predatory practices, and establishing public alternatives to the reckless privatized system that brought us the crisis in the first place. We need to prevent the victims of predatory lending from losing their homes and restrict lobbying by the financial sector.

I have heard from my constituents that they are not supportive of this bill. Many themselves were community bankers. One community banker, for example, wrote:

``I am a community banker who is deeply concerned about the recent developments on Wall Street and the bailouts that our government has undertaken. The great, great majority of banks in this country never made one subprime loan, and 98 percent are well-captialized ..... we don't ask for or need a bailout.''

LITTLE RELIEF FOR THE NATION'S HOMEOWNERS

Because of the way that the bill is written, few if any homeowners will get mortgage relief, which is why I offered an amendment that would give $125 million directly to the homeowners facing mortgage foreclosure. The bill does not contain any provision allowing the terms of a mortgage to be changed without the consent of all the investors who own the mortgage. Few homeowners will benefit. For example, the bill would not provide relief to the majority of homeowners. The bill is little more than a Wall Street earmark and is not really a bill for homeowners. Although the bill does not provide for parachutes for executives, the executives' compensation remains the same.

This is because the Treasury will chiefly purchase mortgage-backed securities which will make the Federal Government one of several co-owners of millions of mortgages. Whether or not any mortgages modified will be determined by the loan servicer acting on behalf of all the various investors who own a piece of the mortgage. That is why Section 108(d) states in part ``The Secretary shall request loan services servicing the mortgage loans to avoid preventable foreclosures.'' Congress has already requested all loan servicers nationwide to avoid preventable foreclosures, so an additional request from the Treasury is unlikely to change current behavior.

REPUBLICAN COMMENTARY

Republican critics of the bill argue that the bill rescues persons that lack financial responsibility because they were living beyond their means or that the bill helps minorities who did not exercise fiscal responsibility. There is simply no credibility to these arguments. As I have attempted to stress today, the mortgage foreclosure crisis affects all Americans. Financial institutions engaged in speculation on Wall Street that we now see has had a deleterious effect on Main Street.

Speculation, in a financial context, is the assumption of the risk of loss, in return for the uncertain possibility of a reward. Speculation is one of the main causes of various economic crises around the world. In fact, speculators have played a major role in the present crisis. The speculators were greedy.

Nonprofits such as ACORN, NACA, and Homefree USA, among many others, have long been waging consumer campaigns to educate borrowers about the various financial instruments. And I am resoundingly grateful to them for their hard work. We cannot make them the scapegoats. These organizations have allowed persons who might not otherwise have the knowledge or the opportunity to purchase a home, the opportunity to do so in the right way. These nonprofits should be applauded.

Everyone deserves the economic dream of owning their own home. But the financial institutions were dilatory in their responsibility to assess the borrower's ability to pay for loans and purchase a home. It was the squandering of this responsibility and preoccupation with greed and avarice that has led us to where we are today.

There are substantial improvements in the present version of the bill compared to the Bush administration proposal. However, the bill as it is presently written does not provide the necessary relief to middle-class America. Frankly, the bill provides no panacea to our present economic woes. Our markets will have the full faith and credit of the United States. This bill has not sent a sufficiently clear message because it lacks enforcement.

There are provisions now that address accountability measures by requiring a plan to ensure the taxpayer is repaid in full, and requiring congressional review after the first $350 billion for future payments.

Principally, there are three phases of a financial rescue with strong taxpayer protections: reinvest, reimburse, and reform. One of the phases is to reinvest in the troubled financial markets to stabilize the markets. Another reimburses the taxpayer and requires a plan to guarantee that they will be repaid in full. The last is to reform how business is done on Wall Street. The current legislation provides for fewer golden parachutes and, to its credit, provides sweeping congressional oversight.

There are critical improvements to the rescue plan that yield greater protection to the American taxpayers and even to Main Street. The protection for taxpayers include the following:

Gives taxpayers a share of the profits of participating companies, or puts taxpayers first in line to recover assets if a company fails; and

Allows the Government to also purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families.

For companies publicly auctioning over $300 million: There will be no multi-million dollar golden parachutes for top five executives after auction, although nothing prevents these executives from still reaping enormous salaries. There will be no tax deduction for executive compensation over $500,000.

However, with a ``pause'' we can help the financial markets and make America secured.

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