FINANCIAL CRISIS -- (Senate - October 01, 2008)
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Mr. ISAKSON. Madam President, I stand before you today and perhaps later on this evening to cast what is without question the most challenging vote and the most important vote I have been asked to cast in 30 years as an elected official. I will vote in favor of the economic stabilization bill because it does precisely one thing that we can do to help unlock the credit markets and help the average working Georgian, the average Georgia retiree, the average Georgia child who is looking to the future, to benefit from what right now is a very difficult situation.
I commend Senator Dodd for his leadership and Senator Gregg for his leadership. They have expended countless dollars in terms of political capital and countless hours to come up with a solution that works.
There are so many misunderstandings in the public about what this is and what this isn't. So just for the few minutes I have, I wish to talk about the core of it, why it is so important, why it makes sense, and why in the end we as a country will not only benefit but, more likely than not, we will profit from the investment our Treasury makes.
The core of this is the $700 billion authorization to buy mortgage-backed securities that are on the books of banks, savings and loans, insurance companies, and other entities in the United States.
The first misconception is that the money is going to Wall Street. Wall Street is not being bailed out. Everybody has forgotten that Lehman Brothers went broke. Merrill Lynch sold itself for 30 cents on the dollar. Bear Stearns sold itself or merged for 10 cents on the dollar. And AIG is paying the taxpayer 8.5 points over LIBOR to borrow $84 billion to dissolve itself. Those are no bailouts. This money goes to those who purchase the securities that were underwritten by Moody's and Standard & Poor's as investment grade and hold them on their balance sheets as an asset which is now valued virtually at zero.
As the Treasury comes in and Secretary Paulson buys these securities, he will make a market in these securities. Once he makes a market, there will be attraction of other investors to jump in for a very good reason. I don't know what price they will establish, but say it is 50 cents, 60 cents or 70 cents on the dollar. A lot of people don't realize that most of these securities, though some of them are in trouble, are not in trouble to the extent of 20, 30, or 40 percent.
By way of example, the worst foreclosure rate in the United States is the State of Nevada--19 percent. If you had a mortgage-backed security that was 100 percent mortgages in the State of Nevada, then, with a 19-percent foreclosure rate, if those foreclosures sold for nothing at sale, then that bond would be worth 81 cents on the dollar at maturity. If somebody paid 50, 60, or 70 percent for it, they would have an 11-, 21-, or 31-percent margin in that security.
The power to hold it to its maturity and the power to buy the security and make a market is what makes this a genius proposal from the standpoint of getting to the heart of the American problem.
Then what it does is it establishes three things. One, it establishes a floor. I want to go back to what Senator Gregg said a few minutes ago. Inaction on the part of the Congress this week on this plan will continue a downward spiral that will accelerate, will deepen, and will touch the life of every American citizen, and it will touch it and harm it for a long period of time.
If we are able to pass it, and quickly go to the marketplace and establish the market for these securities, we create a foundation from which, over time, we can grow out of this. Americans' credit will be back again, albeit much tighter than it has been before. And it should be because we should have learned the lessons from some of the excesses of lending operations before. But credit will return.
What will happen is people will continue to have their jobs. What will happen is people who need to sell a house will now see that people are coming back into the marketplace so they can sell it. All in all, by loosening what is now a clogged credit system at mainstream banks and savings and loans all over the United States of America, we will return a sense of normality to the American economy. The failure of the Congress to do that will establish a continued downward spiral that will be a disastrous for the individual average American in whatever State they live.
So for me this is a difficult vote because you never want to find yourself in this situation. But tonight is not a night to say no to the future of the American people. Tonight is not a night to say no, we do not have a responsibility to help. Tonight is not a night to try to find some philosophical way to figure out how somebody else ought to do it.
It is on the shoulders of the Congress of the United States of America. The people affected are our citizens, the people who have voted for us and sent us here. It is absolutely critical we unclog the financial markets, free up credit to the average American and, over time, restore the American economy to what it has been and always will be: the best entrepreneurial capitalistic system in the world. But failure can sign an end to that very reputation this country so loves and so deserves.
I yield back the remainder of my time.
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