Editor’s Note: Below is the form e-mail received in response to an inquiry about the “Bail Out” from Senator Bob Casey.
Casey states below “After purchasing these assets, the Department of Treasury will hold them until markets for them recover. Treasury would then plan to sell these assets for a profit, recouping most or all of the $700 billion for the benefit of taxpayers.”
It is unclear whether the Treasury will purchase securities at current ‘market value’ in which case the Treasury should earn a large profit over time (Warren Buffett said he would be pleased to invest with the Treasury in such an arrangement) or whether they will be purchased at a far higher than market value as though they were still highily rated bonds, in which case the loss will only be mitigated over the terms as some are paid off. In that case the taxpayers instead of the security owners will take most of the loss.
Thank you for taking the time to contact me regarding the proposal to stabilize the economy and our financial infrastructure. I appreciate hearing from all Pennsylvanians about the issues that matter most to them.
On Wednesday, October 1, the Senate passed H.R. 1424, the Emergency Economic Stabilization Act of 2008, a bill that will stabilize our credit markets, protect retirement and pension savings, modify troubled loans and protect taxpayers from paying for Wall Street’s mistakes. After careful consideration, I decided to vote for this legislation.
This is a time of great economic uncertainty in our Nation’s history. For many families in Pennsylvania and throughout the country, the recession has been part of their lives for many months now. Just this week we learned that the unemployment rate in Pennsylvania went from 5.4% to 5.8% in the month of August and for some parts of the state it went up far more than half a percentage point. We also learned that in the month of August the foreclosure rate in Pennsylvania went up by more than 60% from the previous year. The job loss and foreclosure rates are indicators of the economic trauma that many families have felt in Pennsylvania and across America.
Like you, I am not happy with the current crisis, and I’m angry about the climate of deregulation and deference to Wall Street over the last eight years that got us into this mess. However, failing to act will not simply punish those who brought us to this situation; it will punish everyone.
The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses and other companies to access credit. After purchasing these assets, the Department of Treasury will hold them until markets for them recover. Treasury would then plan to sell these assets for a profit, recouping most or all of the $700 billion for the benefit of taxpayers.
You should know that Congress has significantly improved the original proposal presented by the Bush administration. In the version passed by the Senate, executives will be held accountable for their past decisions through limitations on compensation, prohibitions against golden parachutes or excessive retirement packages, and requirements that unearned bonuses be returned. As improved by the Senate, the legislation also requires participating companies to provide warrants and other forms of equity so that taxpayers will share in the profits if the stock of these companies goes up as a result of Treasury Department intervention.
The EESA also contains several provisions directed at stemming the tide of mortgage foreclosures thereby keeping families in their homes and addressing the root cause which has led to a loss of investor confidence and the freezing of credit markets. It would require the Treasury Department, where possible, to modify troubled loans to help American families keep their homes. It would also expand the HOPE for Homeowners program and require other federal agencies to modify loans that they own or control.
To ensure that Treasury isn’t just getting a blank check, the legislation makes $250 billion available immediately, then requires the President to certify that additional funds are needed. The Treasury must report on the use of the funds and on progress in addressing the crisis. The bill establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner and establishes a special inspector general to protect against waste, fraud and abuse.
The United States is in a financial crisis that could become worse than anything in a generation. In addition, our Nation’s problems are already spreading into the global economy. If the federal government fails to take action right now, there is a real threat to small businesses and jobs, as well as mortgages, pensions and savings.
For all these reasons, I concluded that Congress must act now, and I decided to vote in favor of H.R. 1424. In the last two weeks, I have worked hard to be sure that this bill includes provisions to help families who are struggling. I’ve closely questioned and sent two detailed letters to Treasury Secretary Paulson, Federal Reserve Chairman Bernanke and also spoke to leading economists about this legislation.
Enactment of this legislation is only the first in a series of steps we must take to bring about economic recovery. We need to institute rigorous and aggressive regulation of players in the market place in order to prevent the abuses which caused our economic problems.
Again, thank you for sharing your thoughts with me. Please do not hesitate to contact me in the future about this or any other matter of importance to you.
If you have access to the Internet, I encourage you to visit my web site, http://casey.senate.gov. I invite you to use this online office as a comprehensive resource to stay up-to-date on my work in Washington, request assistance from my office or share
Bob Casey
