Friday, September 26, 2008

Jim Webb and Democratic Senators Propose Terms of Bailout

Like most average Americans, I'm ambivalent about all the proposed versions of bailout plans now emerging after the bipartisan compromise with the administration on Paulson's plan has so far failed. The problem is that I don't know whom to believe. Waiting too long could indeed lead to an ever growing crisis that spirals further out of control and becomes more expensive to fix, and causes more pain to ordinary working people in the end. Here's what's at stake. As credit continues to dry up, loans are harder to get, credit cards are impacted, and pension plans are threatened. In addition, without the ability of even those with excellent credit ratings who can afford mortgages to get them, the housing market plummets further, which leads to more defaults. In other words, the dominoes tumble, and they tumble globally not just nationally.

Still, a lot of credible economists are not convinced that Paulson's package is the most effective one to fix this. Nor are they convinced this is as dire a situation as Bush and Paulson have painted it. With all the differing opinions swirling around, especially the ones by respected economists, I just don't know what to believe. However, a group of Democrats in the Senate has issued a letter to their leader that has what looks to me like some pretty good points for a compromise plan.

Today, Senator Jim Webb and 8 of his Democratic colleagues made public this letter to Senate Leader Harry Reid. It appears to lay down some sensible provisions for a bailout that would protect taxpayers' money and not turn this into reward that protects irresponsible bankers who caused this mess.
September 26, 2008

The Honorable Harry Reid
Majority Leader
United States Senate Washington, DC 20510

Dear Majority Leader Reid:

The undersigned Senators appreciate the time-sensitive nature of the current financial crisis, but want to ensure that several provisions are included in any proposal. While we have not yet seen the proposed compromise legislation, our priority is to ensure that given the impact the legislation would have on U.S. taxpayers, a number of fundamental points must be addressed.

They are as follows:

First, a new regulatory structure must be established to protect our financial system against further instability. Given the time constraints of this crisis, regulation can be put in place following the completion of the current legislation, but should be developed no later than the first six (6) months after passage.

Second, the funds requested by the Treasury Department should be released in installments. A 'tranched' approach would permit the Congress to properly fulfill its oversight role and to monitor the implementation of a new regulatory structure.

Third, limits should be proposed on the compensation of executives at private institutions participating in the Treasury's program. A mechanism could also be put in place to provide for executives to receive increased compensation if they return their companies to profitability and make taxpayers whole. But if taxpayers will be asked to make historical sacrifices, so should the institutions and individuals who facilitated this crisis.

Fourth, in exchange for taxpayer assistance, the government should take equity in the troubled institutions through warrants, contingent shares, or a senior debt instrument in the case of non-publicly traded entity. The goal of the valuation of the contingent shares/warrants received by the government should be to protect the taxpayers from loss to the greatest extent possible and any gains are returned to the U.S. Treasury.

Lastly, foreign central banks, not the U.S. taxpayer, should provide financial assistance to foreign-based institutions and their U.S. subsidiaries.

Jim Webb (D-VA)
Tom Harkin (D-IA)
Ben Nelson (D-NE)
Bill Nelson (D-FL)
Blanche Lincoln (D-AR)
Barbara Boxer (D-CA)
Diane Feinstein (D-CA)
Ken Salazar (D-CO)
Amy Klobuchar (D-MN)

cc: The Honorable Christopher Dodd
Chairman Senate Committee on Banking, Housing, and Urban Affairs

The Honorable Richard C. Shelby
Ranking Member Senate Committee on Banking, Housing, and Urban Affairs


Mosquito said...

Senator Webb is definitely aware of Senator Bernie Sanders proposal which would have wealthy taxpayers bear the burden....but Webb is not going to look out for the majority of Americans who did not profit from this mess but will bear the burden of it.

So much for Jim Webb fighting for the economic fairness he promised.

AnonymousIsAWoman said...

Well, I disagree with you about Webb not looking out for the majority of Americans. He is very much for economic fairness. But not getting something passed will hurt ordinary people.

The truth is even if the big banks go under and take everything with them, the executives will still walk away with their golden parachutes - those are built into their contracts whether they succeed or fail. Tell me if any Enron executive would have walked away truly destitute? Those who broke the law were finally prosecuted and went to jail.

But barring breaking the law, CEOs do not lose their perks, their stock, their pensions, their severence packages. But you and I will lose whatever retirement savings we have, have difficulty getting loans and mortgages, and even credit cards.

And when businesses have problems with credit and liquidity, we will lose jobs. It really is dire. It's one thing to argue about which package and to debate the details but it's irresponsible to say nothing needs to be done.

And I know Barney Frank didn't do that. But you can't let the perfect be the enemy of the good. Let's go for good and whatever protections we can get built into this, especially a return to oversight and regulation.

Even Frank is willing to compromise to get this done.