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A Wyoming perspective
By Aaron LeClair
Boomerang Staff Writer
The U.S. House of Representatives rejected a bill Monday that would have given the Secretary of the Treasury up to $700 billion to rescue the U.S. financial system.
The House voted 228-205, thereby rejecting HR 3997, the Financial Markets Bill. The Associated Press (AP) reported that 133 Republicans and 95 Democrats opposed the bill.
Meanwhile, 140 Democrats and 65 Republicans, including outgoing Rep. Barbara Cubin of Wyoming, voted “yes” on HR 3997.
Cubin issued a statement in which she said Congress had to find a solution to the financial crisis before its members go on break.
“It is now important for Congress to find another solution,” she said. “We cannot go home without ensuring our constituents are protected from market failures.”
While she did not agree with all of the provisions in HR 3997, Cubin said she supported the bill because she “felt it was vital for our country to put our best foot forward.”
President Bush said he was frustrated and disappointed that the bill did not pass the House.
“I’m disappointed in the vote by the United States Congress,” he said, according to the AP. “We’ve put forth a plan that was big because we’ve got a big problem.”
The defeat of HR 3997 resulted in a record loss on Wall Street. The Dow Jones plunged more than 777 points, the largest drop ever for a single day, after the vote.
HR 3997 would have gone a long way in oversight, accountability and amending financial and housing industry regulations compared to what U.S. Treasury Secretary Henry Paulson had proposed last week.
The bill would have established a Troubled Assets Relief Program (TARP), under which the Secretary of the Treasury could have purchased troubled assets (including residential and commercial mortgages) from any financial institution.
TARP also would have allowed the federal government to insure or guarantee troubled assets — including mortgage-backed securities — that were issued before March 14.
Unlike the bill that Paulson presented to the Congress last week, in which Congress could not independently review the Secretary’s decisions, HR 3997 would have instituted the Financial Stability Oversight Board that could have:
n Reviewed all programs created by the Secretary of the Treasury,
n Made recommendations to the Secretary, and
n Reported any suspected fraud, misrepresentation or malfeasance.
Aside from the Financial Stability Board, the U.S. Comptroller General would have reported to the Congress and a special investigator appointed by the President with the consent of the Senate.
In addition to oversight, the Comptroller General would have conducted a study on how well the Securities and Exchange Commission (SEC), the Treasury Secretary and federal banking agencies oversaw the financial institutions and regulated the practices of leveraging and deleveraging.
(Leveraging, according to the Associated Press’ Business Guidelines, is the use of borrowed assets by a business to enhance the return of the owner’s equity through the expectation that the interest rate charged would be lower than the earnings on the money.)
The bill also would have required that the Secretary issue operating and expenditure reports every 30 days to the appropriate Congressional committees.
In addition to the aforementioned duties, the Treasury Secretary would have been required to review the current state of the regulatory system and issue a report to the Congress of its effectiveness at overseeing the financial markets.
In terms of protecting residential homeowners, HR 3997 would have required that a federal property manager who holds, owns or controls mortgages or mortgage-backed securities implement a plan that would have maximized assistance for homeowners to minimize foreclosures through a reduction in interest rates and loan principal or some other modification.
In his original proposal, Paulson had asked for a payment of $700 billion to purchase troubled assets.
HR 3997, however, would have limited the Treasury Secretary to installments of $250 billion, with the option of securing $350 billion through a written request signed by the President.
In addition to limiting how much the Treasury Secretary receives at any one time, the Congress would have had the power to reject his purchase of assets of $350 billion or more through the drafting of a joint resolution.
Apart from protecting homeowners and providing oversight, the bill would have cut the proverbial “golden parachute” for chief executives of companies that sold troubled assets to the federal government by limiting their salary deductions to $500,000 or less.
These companies also would have not been allowed to rewrite the contracts for their top five executives if they are fired or the company goes under.
Current severance packages and salary deductions for chief officers, however, would have remained unchanged.
——
Hilla Maaria Skiba, an assistant professor in the University of Wyoming Department of Economics and Finance, said she believes the bailout would have set a dangerous precedent by saving those financial institutions that had engaged in excessively risky behavior.
“The compensation of financial managers in the industry already gives disproportionately high rewards for risk taking. We all know that you can’t earn high returns without taking on a lot of risks, and managers cannot earn their hefty bonuses without taking on excessive risk,” she said. “With the bailout, the government is sending a signal that eliminates the downside of excessive risk taking.”
Because it is an election year, Skiba said it was predictable that two-thirds of House Republicans opposed HR 3997.
“This is not all that surprising given the belief in laissez-faire economy or the free-market economy by conservative Republicans,” she said. “Especially in an election year, it might be a good strategy to ‘protect the taxpayers’ from this unpopular bill. Going against the bill is much easier to justify come election time than the finer details of the bailout, (which included) purchasing assets with real value and the taxpayer protection.”
Nevertheless, without a bailout or rescue plan of some type, Skiba says the financial crisis could spread throughout the U.S. and global financial systems.
“I believe that the crisis would spread much further and deeper into the U.S. and global firms and industries (without a rescue plan),” she said. “Also, (American businessman and philanthropist) Warren Buffet has given his strong opinion that without the bailout, the U.S. will face ‘the biggest financial meltdown in American history.’”
Aaron LeClair’s e-mail address is lbedit7@laramieboomerang.com
The House voted 228-205, thereby rejecting HR 3997, the Financial Markets Bill. The Associated Press (AP) reported that 133 Republicans and 95 Democrats opposed the bill.
Meanwhile, 140 Democrats and 65 Republicans, including outgoing Rep. Barbara Cubin of Wyoming, voted “yes” on HR 3997.
Cubin issued a statement in which she said Congress had to find a solution to the financial crisis before its members go on break.
“It is now important for Congress to find another solution,” she said. “We cannot go home without ensuring our constituents are protected from market failures.”
While she did not agree with all of the provisions in HR 3997, Cubin said she supported the bill because she “felt it was vital for our country to put our best foot forward.”
President Bush said he was frustrated and disappointed that the bill did not pass the House.
“I’m disappointed in the vote by the United States Congress,” he said, according to the AP. “We’ve put forth a plan that was big because we’ve got a big problem.”
The defeat of HR 3997 resulted in a record loss on Wall Street. The Dow Jones plunged more than 777 points, the largest drop ever for a single day, after the vote.
HR 3997 would have gone a long way in oversight, accountability and amending financial and housing industry regulations compared to what U.S. Treasury Secretary Henry Paulson had proposed last week.
The bill would have established a Troubled Assets Relief Program (TARP), under which the Secretary of the Treasury could have purchased troubled assets (including residential and commercial mortgages) from any financial institution.
TARP also would have allowed the federal government to insure or guarantee troubled assets — including mortgage-backed securities — that were issued before March 14.
Unlike the bill that Paulson presented to the Congress last week, in which Congress could not independently review the Secretary’s decisions, HR 3997 would have instituted the Financial Stability Oversight Board that could have:
n Reviewed all programs created by the Secretary of the Treasury,
n Made recommendations to the Secretary, and
n Reported any suspected fraud, misrepresentation or malfeasance.
Aside from the Financial Stability Board, the U.S. Comptroller General would have reported to the Congress and a special investigator appointed by the President with the consent of the Senate.
In addition to oversight, the Comptroller General would have conducted a study on how well the Securities and Exchange Commission (SEC), the Treasury Secretary and federal banking agencies oversaw the financial institutions and regulated the practices of leveraging and deleveraging.
(Leveraging, according to the Associated Press’ Business Guidelines, is the use of borrowed assets by a business to enhance the return of the owner’s equity through the expectation that the interest rate charged would be lower than the earnings on the money.)
The bill also would have required that the Secretary issue operating and expenditure reports every 30 days to the appropriate Congressional committees.
In addition to the aforementioned duties, the Treasury Secretary would have been required to review the current state of the regulatory system and issue a report to the Congress of its effectiveness at overseeing the financial markets.
In terms of protecting residential homeowners, HR 3997 would have required that a federal property manager who holds, owns or controls mortgages or mortgage-backed securities implement a plan that would have maximized assistance for homeowners to minimize foreclosures through a reduction in interest rates and loan principal or some other modification.
In his original proposal, Paulson had asked for a payment of $700 billion to purchase troubled assets.
HR 3997, however, would have limited the Treasury Secretary to installments of $250 billion, with the option of securing $350 billion through a written request signed by the President.
In addition to limiting how much the Treasury Secretary receives at any one time, the Congress would have had the power to reject his purchase of assets of $350 billion or more through the drafting of a joint resolution.
Apart from protecting homeowners and providing oversight, the bill would have cut the proverbial “golden parachute” for chief executives of companies that sold troubled assets to the federal government by limiting their salary deductions to $500,000 or less.
These companies also would have not been allowed to rewrite the contracts for their top five executives if they are fired or the company goes under.
Current severance packages and salary deductions for chief officers, however, would have remained unchanged.
——
Hilla Maaria Skiba, an assistant professor in the University of Wyoming Department of Economics and Finance, said she believes the bailout would have set a dangerous precedent by saving those financial institutions that had engaged in excessively risky behavior.
“The compensation of financial managers in the industry already gives disproportionately high rewards for risk taking. We all know that you can’t earn high returns without taking on a lot of risks, and managers cannot earn their hefty bonuses without taking on excessive risk,” she said. “With the bailout, the government is sending a signal that eliminates the downside of excessive risk taking.”
Because it is an election year, Skiba said it was predictable that two-thirds of House Republicans opposed HR 3997.
“This is not all that surprising given the belief in laissez-faire economy or the free-market economy by conservative Republicans,” she said. “Especially in an election year, it might be a good strategy to ‘protect the taxpayers’ from this unpopular bill. Going against the bill is much easier to justify come election time than the finer details of the bailout, (which included) purchasing assets with real value and the taxpayer protection.”
Nevertheless, without a bailout or rescue plan of some type, Skiba says the financial crisis could spread throughout the U.S. and global financial systems.
“I believe that the crisis would spread much further and deeper into the U.S. and global firms and industries (without a rescue plan),” she said. “Also, (American businessman and philanthropist) Warren Buffet has given his strong opinion that without the bailout, the U.S. will face ‘the biggest financial meltdown in American history.’”
Aaron LeClair’s e-mail address is lbedit7@laramieboomerang.com
