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Inglis: Inaction riskier than buy out
(September 29, 2008)
U.S. Rep. Bob Inglis (R-SC) said Monday that the risk of inaction is greater than the risk of buying the illiquid securities that have made America’s financial markets toxic and that now threaten the way of life for every American.
“When knowledgeable people tell us that there is a substantial chance of a depression, it’s time to act,” Inglis said today in debate on the House Floor.
“Our financial markets have overdosed on credit. Truth be known, we have all overdosed on credit—the federal government, businesses large and small, families wealthy and poor. Working that overdose out of our system is going to take time.”
Inglis said that by buying up some securities that have fallen to a price below their value, the government might be able to stabilize the market and later sell some of those securities at a profit. Some of those securities will be found to be worthless because they are so far removed from the original, mortgaged collateral. Most, though, are tied enough to an actual asset—real estate.
“Wall Street types invented more and more ways to achieve higher and higher levels of leverage; not a one of them ever invented more real estate,” Inglis said. “It’s here; it’s got value; and when the market recovers, its value will recover.”
In weighing the pros and cons, Inglis said the government is in position to buy securities at a fraction of their value, hold those securities until the market stabilizes and then sell those securities at a profit.
The bill also limits golden parachutes and grotesque executive pay packages, adds accountability and oversight, provides for expedited judicial review and establishes the option of an insurance mechanism. In exchange for buying the assets, the government will receive warrants that will allow it to participate in any future profits.
Inglis said that the best argument against the buy out is that it socializes the losses after Wall Street has pocketed the profits. Also, the insurance program is only optional, and there’s no guarantee that the buy out will work, creating a worst-case scenario of having to come back again in weeks or months to deal with more problems.
Inglis said, "Some high-flying Wall Street types took us up in a faulty airplane. We all want to shoot the pilots, but we need to get the plane to the ground before we commence the shooting."
“Many have called this a bail out, and they are concerned that we are giving the pilots a parachute. Well, we're strapping the pilots in with limits on golden parachutes and executive compensation. But more than that, notice that the pilots are at the nose of this plane.
“By buying the securities at below market prices, it’s the pilots who are the going to take the impact of this controlled, emergency landing. If we don’t act or if we just shoot the pilots, we crash.”