Posted on 10/01/2008 3:19:04 PM PDT by Shermy
The following is a Dear Colleague sent by Representative DeFazio introducing his No BAILOUTS Act, which would Address the current financial crisis without putting the American taxpayer on the hook for billions of dollars.
Dear Democratic Colleague:
The House of Representatives rejected the $700 bailout yesterday. Distinguished economists across the world have stated it would not have solved the problem at hand. However, we can potentially solve this liquidity problem at little cost to the taxpayer. I am proposing that Congress drop the Paulson Plan, and instead pass the No BAILOUTS Act. The No BAILOUTS Act provides an alternative to the Paulson Proposal to address the current credit crunch. Once Congress addresses the liquidity shortfalls in our financial markets, a Democratic Congress can turn to Democratic solutions to address the broader economic crises we face today. Specifically, Congress can work to resolve the housing crisis across the country and pass effective job stimulus, which is the response Main Street America expects and deserves.
While Democrats and Republicans may disagree on the underlying solutions to solve the economic crises we face, the No BAILOUTS Act - a regulatory based proposal - has the potential for significant bipartisan support.
The Paulson Premise Flawed Simon Johnson, a former chief economist as the International Monetary Fund, stated today in the New York Times of Paulson’s plan, “It’s our view that this package, in a fundamental sense, will not solve the problem.” Other economic analysts noted yesterday that the credit markets around the world were almost entirely dysfunctional even when political leaders and investors assumed that Congress had reached a deal and would easily approve the bailout. There is no reason to believe Paulson’s plan will work.
Alternatives We have credible alternatives to the Paulson/Bush $700 billion gamble. William Isaac, the chairman of the FDIC during the previous worst financial crisis in the United States during the 1980s, believes Congress can address the current crisis with simple changes to Securities and Exchange Commission (SEC) rules. Mr. Isaac points out that while we face serious financial challenges today, many banks are still in good shape. This allows Congress to take swift, uncomplicated steps to ensure the financial markets return to working order. After that, we can work to resolve the housing crisis and pass effective job stimulus.
Today I am offering an alternative to the Wall Street bailout that will correct the capital shortfalls experienced by many financial institutions and help protect the integrity and quality of the securities market. My plan could be implemented promptly meeting the demands of the Bush Administration to act immediately without putting the American taxpayer on the hook for billions of dollars.
No BAILOUTS Act
Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security
1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.
This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.
2) Require the Securities and Exchange Commission to restricting naked short sells permanently
This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.
3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.
This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies “to protect the integrity and quality of the securities market and strengthen investor confidence.” This rule prevents market crashes brought on by irrational short term market behavior.
4) “Net Worth Certificate Program”
This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.
Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.
In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.
5) Increase the FDIC Insurance limit from $100,000 to $250,000.
The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.
Sincerely Peter DeFazio Member of Congress
No mental health or global warming provisions in this proposal.
The fact he capitalizes BAILOUTS is a thumb in the eye to the “rescue” crowd, makes him worthy of consideration alone. ;)
Makes far too much sense to be adopted by our congresscritters...........
It is over...Shelby on c-span says done deal. We have been had. Prepare to pay the piper.
Paulson will turnover taxpayer funds to foreign central banks for sub prime securitized notes.
Ironically, he and Goldman Sachs were the onle who pushed and sold that paper in the first place.
I’ve come to the conclusion that the reason we have to have the 700B is to bail out foreign investors.
Actually are some liberals out there with some good sense.
Paulson Bank Rescue Proposal Is `Crazy,' O'Neill Says
I have seen no independent expert give anything near approval of this bill. All seem against it, or are fatalistic it won't do anything.
The only voices of concern come from Putin, Sarkozy, other world leaders.
With each permutation, the bill has steadily grown in size. Treasury’s initial plan was about three pages long. The House version, which failed, stretched to 110. The Senate substitute now runs over 450 pages. And tucked away in the tax provisions is a landmark health care provision demanding that insurance companies provide coverage for mental health treatment—such as hospitalization—on parity with physical illnesses.
Really a bill onto itself, the mental health parity measure has been a bipartisan priority for top lawmakers in both chambers but has stalled because of disagreements again over how to pay for its estimated $3.8 billion five-year cost. In the current climate, that seems to be no longer a stumbling block, and if the Treasury plan becomes law, it will also.
Maybe the bill is a subsidy to insurers to provide the coverage,
No doubt the bigger insurers will find use of this money to profit, fund bonuses.
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