Got one letter back already, though no instructions where to pick up my check. Looks like a canned response drafted by some intern or something:
“Dear Mr. Eberhard:
Thank you for contacting me concerning the current financial crisis and economic downturn. I am pleased to hear from you on this matter.
Our financial markets are experiencing a once-in-a-lifetime event, the full consequences of which are just now unfolding. Short-term credit for borrowers is unavailable or prohibitively expensive. The balance sheets of banks include illiquid assets of questionable value. Equity prices have fallen, and even the safety of money market funds has been called into question. Unable to meet their contractual commitments to creditors, a number of prominent financial institutions have failed or required significant federal assistance.
In my view, a confluence of factors has contributed to the current credit crisis, including irresponsible actions by financial institutions, excessive borrowing, a severe decline in the housing market, and the inadequacy of our depression-era financial regulatory structure. In the years leading up to 2007, lenders in the competitive mortgage finance business increasingly sought to maximize profits by extending mortgages to borrowers that were less and less credit worthy. Through the securitization process, new mortgages were packaged and sold to investors in the form of mortgage-backed securities. The investment return was tied to the mortgage payments made by the underlying homeowners. Many investors purchased de facto insurance policies, such as credit default swaps, to protect against losses on their securities. However, the insurance policy is only valuable if the party writing and selling the policy remains solvent. As delinquencies and foreclosures increased, the mortgage-backed securities lost value. The interconnectedness of financial institutions and the uncertainty of who holds the ultimate risk with respect to these asset-backed securities have discouraged potential buyers, undermined investor confidence, and increased market volatility. The result has been the dissolution, acquisition, or federal takeover of several large financial firms.
In order to restore liquidity and stability to the financial system, I supported the passage and enactment of the Emergency Economic Stabilization Act (P.L. 110-343), which the President signed into law on October 3, 2008. Let me be clear, I supported the federal financial rescue package because the health of the financial system affects every American – even those without bank accounts, credit cards, or loans. Small and large businesses rely on the credit markets to run their companies and pay their employees. If the credit markets dry up, businesses who need credit have to close and employees lose their jobs. Moreover, many workers rely on the markets for their retirement security and for the financing of their homes, their cars and their children’s college tuition.
The Administration’s original $700 billion proposal was only three pages in length. If Congress had passed the President’s blank check proposal without changes, it would have committed legislative malpractice. Unlike the original proposal, the enacted version seeks to: (1) hold Wall Street accountable by prohibiting excessive compensation and severance packages for top executives; (2) preserve homeownership and mitigate additional home foreclosures; and (3) protect the interests of taxpayers through aggressive oversight and measures that increase the likelihood that taxpayers will be repaid. The legislation authorizes the U.S. Department of the Treasury to establish the Troubled Asset Relief Program (TARP) to buy mortgage-backed securities and other distressed financial assets. It also authorizes the Treasury Department to invest capital directly in financial institutions.
The financial rescue plan, as modified and improved by Congress, includes a number of important oversight and transparency measures to ensure that the funds are used responsibly. The government must publicly disclose the details of every transaction within 48 hours. The Treasury Department must provide Congress with regular reports and financial statements regarding expenditures, transactions, and pricing mechanisms. The U.S. Government Accountability Office – which reports directly to Congress – is required to review progress and report on the program every 60 days. The bill establishes two separate oversight boards. One will consist of senior officials from other federal agencies. The second oversight board will consist of private sector members appointed by Congress. Lastly, Congress authorized the creation of a special inspector general position to coordinate audits and investigations of actions under the program.
Notwithstanding the oversight and transparency provisions, additional measures were needed to protect the interests of taxpayers. The bill requires the Treasury Secretary to obtain an equity position (e.g., stock) or a debt instrument from the financial institutions selling the troubled assets. If taxpayers do not recoup their investment in five years, the President must submit a plan to cover taxpayer losses.
In order to ensure that Wall Street executives do not escape with “golden parachutes” while taxpayers are left with the bill, the rescue plan requires the Treasury Secretary to develop appropriate standards for executive compensation and corporate governance. Certain large financial institutions will be prohibited from extending, in any new employment contract, a golden parachute that provides compensation in the event of an involuntary termination, bankruptcy filing, insolvency, or receivership. Tax provisions restrict a participating employer’s deductibility of current or deferred compensation exceeding $500,000 for top executives. Lastly, the current 20-percent excise tax on executives receiving large severance packages when a company changes hands is expanded to cover departures that occur for other reasons.
The bill will help preserve homeownership by directing federal agencies to modify the troubled mortgages they acquire in order to prevent and minimize foreclosures. Federal entities are directed to work with mortgage servicers to encourage loan modifications. The bill also expands U.S. Housing and Urban Development’s (HUD) Hope for Homeowners Program, created in July 2008. The program facilitates the refinancing of homes facing foreclosure. Other important provisions increase the level of deposits guaranteed by the Federal Deposit Insurance Corporation from $100,000 to $250,000 and allow banks that owned preferred shares of Fannie Mae and Freddie Mac to deduct losses realized as a result of the federal takeover as ordinary income.
Going forward, I am particularly pleased that the financial rescue plan includes a modified version of a proposal I introduced with Senator Maria Cantwell (D-WA) to jump-start the fundamental reform of our financial regulatory structure. Our proposal was introduced in the Financial Market Investigation, Oversight, and Reform Act (S. 3652). This enacted provision establishes a bipartisan oversight panel consisting of five private sector representatives appointed by congressional leaders. The panel is charged with conducting a comprehensive review of the financial regulatory system and reporting back to Congress in approximately four months with specific recommendations on how to overhaul and modernize our financial regulatory structure to prevent credit and liquidity crises from occurring in the future. The current regime was constructed in the aftermath of the Great Depression, and it desperately needs reexamination and reform in order to prevent a repeat of the current crisis. We must take steps to ensure that we never again find ourselves in the same position – where Main Street taxpayers are bailing out Wall Street financial institutions.
On October 14, 2008, Secretary Paulson announced that the first $250 billion tranche in the $700 billion rescue fund will be used to recapitalize the financial sector by purchasing nonvoting preferred stock in banks and thrifts. Participating banks are subject to the new executive compensation restrictions. Some of the key terms in Treasury’s announcement include the following: (1) the amount invested will range from one to three percent of the bank’s assets, but no more than $25 billion for any one institution; (2) the shares will pay dividends of 5 percent for the first five years and 9 percent thereafter; (3) the shares are redeemable by the bank after three years, or earlier with the proceeds of a new bank equity offering; and (4) the government will also receive common stock warrants equal to 15 percent of the preferred share investment. The Treasury plan is a critical step in the effort to reopen and stabilize credit markets and will complement the actions taken by our European trading partners.
When Congress reconvenes, both the House and Senate will get to work on reforming and modifying our financial regulatory structure to prevent future crises. Fundamental financial reform will require Congress to come together in a bipartisan fashion and confront a number of vested interests that benefit from the current rules. Please be assured that I will closely monitor the Treasury Department’s implementation of the financial rescue plan and will continue my efforts to forge a bipartisan solution to this economic crisis.
Thank you again for sharing your views and concerns with me. I hope you will continue to visit my website at http://lieberman.senate.gov for updated news about my work on behalf of Connecticut and the nation. Please contact me if you have any additional questions or comments about our work in Congress.
Joseph I. Lieberman
UNITED STATES SENATOR”
This is why I didn’t vote for him. He sounds smarmy even in his templated e-mails to people like me. I want to vomit…