EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 -- (House of Representatives - October 03, 2008)
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Mr. WELDON of Florida. Madam Speaker, many of my constituents have called and written me in opposition to the current plan to deal with the Nations financial crisis. I consider this to be one of the most serious and important issues I have dealt with in my 14 years in the House.
My father was born in 1919 into a poor working class family in New York City. During his most critical formative years from the time he was 10, until he went off to fight in WWII, all he knew was the deprivation of the great depression. He and his brothers and sisters regularly went to bed hungry, on many nights dinner consisted of a choice of either a ketchup or a mustard sandwich.
He was a good student, nonetheless had to drop out of school at age 15 so he could go to work, often making only pennies a day, but his family needed food. After the war he met my mother and had a family and was never able to go back to school.
One of the things that emerged from his experience was a tremendous amount of appreciation for having a good job and the importance of saving and preparing for retirement. Those enduring values he passed on to me.
Today, our Nation is faced with what is being described by many economists as the worst financial crisis since the great depression. With the decline in the housing market there are many banks and other financial institutions that have been adversely effected. This has caused many of these banks to have to stop or reduce lending money. Many banks have gone bankrupt.
There is no question that this problem was started by the Federal Government's efforts to modify lending rules to allow those with lower incomes and poor credit scores to purchase homes, often with no money down. The inappropriate and meddling actions by the Government-sponsored entities Fannie May and Freddie Mac laid the groundwork for this crisis and it was made worse by unscrupulous Wall Street Bankers and mortgage brokers.
What started as a housing market decline has now become a credit crisis effecting global finance, and it is beginning to affect the retirement savings of millions of Americans and our national economy. Many companies are starting to find it difficult to get financing and we are starting to have leaders in finance and business tell us that if this is not contained we may begin to see spreading business failures and unemployment.
It is against this backdrop that Treasury Secretary Paulson and the head of the Federal Reserve Ben Bernanke originally proposed a plan that calls for the U.S. Treasury to purchase with cash many of these mortgage backed securities held by these banks. Many of the assets are backed by real estate, but because there is no market for them today the bankers are being told they are worthless under the new accounting rules put in place after the Enron scandal.
Banks loan out money at a ratio of 10 to 1. For every 100 dollars of assets they have on their books they are able to make $1,000 in loans. The banks that now hold these mortgaged backed securities have seen the value of many of these plummet to zero which has wiped out hundreds of billions of dollars of capital from their balance sheets. This has taken trillions of dollars out of the capital markets because of this 10:1 ratio. If you were a bank and on your balance sheet was a $100 million dollars worth of mortgage backed securities that the accountants are telling you it is worth zero then you can't do $1 billion in loans.
The Paulson Plan called for purchasing these mortgage-backed securities with cash. I was not happy with the original plan put forth by the Secretary. It called for providing him unfettered access to $700 billion.
The bill I voted for on Monday September 29th and which failed to get a majority was a significant improvement over Secretary Paulson's original proposal. It reduced by half the amount of cash he could access without coming back to Congress. It required that he also develop an option other then asset purchase that included offering insurance to back up the value of these mortgage securities. It also had strong restrictions on excessive executive salaries for many of these troubled companies. No golden parachutes.
Despite the improvements in the bill it did not get my support because I liked it. I voted for it because I was concerned that inaction was too risky. My preferred approach was that proposed by former FDIC Chairman William Isaac. This plan was never given a vote.
Since that failed House vote, the Senate took up the bill and it has added some good things. There are several extensions of existing tax breaks that help families and businesses that were due to expire. Two important items are the coritinuation of sales tax deductibility for the people of Florida and the increase of FDIC insurance to $250,000. It also has a provision to modify the alternative minimum tax. If this provision is not enacted over 20 million families in America will be saddled with huge tax increases next year at a time when they can least afford it.
Unfortunately, the Senate put in several unnecessary items as well such as earmarked tax breaks for special interests. Despite the many flaws in this bill it is the only bill that I will be given a chance to vote on by the Democrat leadership. In light of the very serious problems in our economy, I will give it my support with a yes vote.
I realize that there are many like-minded conservatives in District 15 of Florida and around the country that disagree. I am reminded at this time of the great controversy surrounding the drafting of the Constitution and its ratification at the birth of our Nation.
Today, the Constitution is revered and it has served out Nation well for over 200 years. But the debate surrounding its drafting and ratification was highly controversial with many patriots at the time being strongly opposed to it.
Time will determine if this financial rescue package will serve our Nation well. I am concerned that we are heading into a recession. This package if it works well will likely not allow us to avert a recession, but may allow us to avert a depression.
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