I was pleased to get a reply from our Representative, Norm Dicks. It follows my response to his response below:
Dear Rep Dicks,
Thank you for your response. It is clear and detailed, and I appreciate the thought that has gone into your position. I find I do agree with you about President Bush's administration's mishandling of the economy, for all of its 8 years, though we may not agree on the how of that mismanagement!
I would be a happier person if the government had acted days sooner to avert the Lehman collapse, that having cost me significantly in my retirement.
It is clear the government will be taking a more assertive role in the future. I don't like it, but it is a developing fact. The concern I have is about the haste and the track record. Unintended consequences always accompany legislation. Please do your best to minimize them, that is all I ask.
On a specific note, the Mark to Market accounting rules must be changed! This is one of the key factors in how this mess has leveraged to such a degree. As a lesson to legislators, it is a prime example of unintended consequences.
As to Mr Summers' recommendations, and HR 384, I find the banning of dividends to be personally punitive. Dividends are one of my key sources of income. The profits that are dividends should accrue to shareholders of these institutions, of which I am one. As is now the government. As to the restrictions on executive pay, that is a nice action that makes everyone feel good, but can you quantify the overall impact on the economy? How much payroll will be saved, and what percent is that of the mess? This is not intended to be argumentative, but the time spent railing about it could be spent educating the public and dealing with more substantive issues. Having said that, any institution that takes the bailout money surely knows it is subject to Gov't intervention in less pleasant ways, so caveat emptor.
Keep a sharp eye on the funds as you have promised, and please remember that common sense in times of crisis must take precedent over party politics. Please help your colleagues see their role as a check and balance is more important than the President's agenda.
Mr Dicks, I appreciate your service, and wish you and your colleagues insight, fortitude and courage to deal with the issues we face in a way that will not leave your successors and our children burdened with debt nor with an diminished America.
On Feb 5, 2009, at 1:53 PM, Congressman Norm Dicks wrote:
Dear Mr. Banbury:
Thank you for contacting me to comment about the administration of the Troubled Assets Relief Program (TARP) and the request that was made in mid-January by President Bush to release the second portion of funds allowed by the Emergency Economic Stabilization Act (EESA).
In October, Congress approved the EESA, establishing a $700 billion fund to be used by the Department of the Treasury to stabilize the financial services industry, which was potentially facing total collapse after the a number of the nation's largest financial institutions, including Washington Mutual. Under the bill, the Treasury Department was given the authority to use $350 billion immediately, with another $350 billion being released upon the request of the President as long as Congress did not pass a resolution disapproving of the request.
With most of the first $350 billion, Treasury Secretary Paulson recapitalized the major national financial institutions and a number of smaller, regional banks. In return for the infusion of capital, the U.S. Government received preferred stock in each participating institution, so if the industry can survive the current economic downturn, it is likely that the nation will actually realize a profit. But reaching that point is still well into the future.
Although I believe that the funds, as spent, were largely responsible for staving off the worst, I was deeply disappointed with the administration of the TARP funds by the Bush Administration. Although several oversight provisions were included in the EESA, then-Treasury Secretary Paulson was slow to implement them, frustrating many in Congress. The bill also included provisions directing Treasury to establish a program to help homeowners to continue to make payments and avoid foreclosure; however, the Bush Administration refused to act. Finally, the agreement reached with the previous Administration should have led to restarting lending to qualified small businesses and municipalities. For the most part, however, the Administration focused almost exclusively on recapitalizing large financial institutions to the exclusion of these other points.
In recent weeks, as job losses have increased and financial institutions have continued to struggle with record losses, it had become clear that the second $350 billion allowed by the EESA would be necessary maintain the viability of the industry and to continue to try and reinvigorate the credit market. However, given the poor performance of the BushAdministration, many Members of Congress, including myself, believe that we need assurances from the Obama Administration that the language included in the law will be met.
In response to Congress, President Obama's chief economic advisor, Lawrence Summers, outlined five changes to the program that the President intends to pursue:
o Easing credit and lending for small businesses, consumers and municipalities;
o Strengthening oversight of the program and moving quickly to overhaul financial industry regulations;
o Launching "a sweeping effort to address the foreclosure crisis" by reducing mortgage payments for troubled homeowners and changing bankruptcy laws;
o Limiting executive compensation at firms that receive government funds, banning most dividend payments and limiting stock buybacks and acquisitions of financially healthy companies; and
o Replacing government funds with private investments as soon as possible.
These are similar to points that then-candidate Obama supported in October, and I believe they will be important forensuring the success of the program.
With the support of President Obama, the House considered H.R. 384, which would codify the new requirements and clarify portions of the EESA to ensure that the new Administration complies with these agreed-upon points. In addition to more stringent reporting requirements for the expenditure of future funds, it would require a public disclosure of how past assets have been expended. It would also require that at least $40 billion of the second portion of the package be used to help prevent foreclosures, which I believe is critical to stabilizing the real estate market. I strongly supported passage of this bill.
When President Bush requested the second $350 billion for the TARP on behalf of the incoming President, it triggered an EESA provision wherein the funds would be issued in 14 days unless both Houses of Congress voted to disapprove of the request. The Senate rejected a motion to disapprove on January 15th, thus assuring that the funds would be released. Subsequently, the House took a largely symbolic vote on H.J.Res. 3, with a majority of the House voting to disapprove of the release of additional money, largely to protest the mistakes of the Bush Administration. Although I share many of those sentiments, I believe that President Obama, from within the structure established by H.R. 384 and the outline he has provided, will administer the new funds in a wiser and more appropriate manner. Most importantly, I do not believe that the crisis for which these funds were originally approved has passed.
President Obama has just announced that new rules have been put in place to tighten restrictions on executive compensation for future recipients of federal aid under the government's financial rescue program. Also, Companies that need special assistance from the government to survive would face mandatory restrictions on compensation for their senior executives: no more than $500,000 in salary and no additional compensation other than shares of the company's stock that can only be redeemed after the government investment is repaid. I support the President's decision.
As funding is released and the program continues, please be assured I will work with my colleagues in the House to assure vigorous oversight of the program. In addition, I intend to work with the new Administration to ensure that the regulatory agencies responsible for overseeing the financial services industry are more aggressive and have adequate resources to prevent this from happening again.