Emergency Economic Stabilization Act

September 29, 2008 - Today, I voted for the Emergency Economic Stabilization Act of 2008 (click here to read the bill), realizing it is unpopular, but recognizing that the failure to act could precipitate a financial meltdown not only on Wall Street but in our community. As you know, the bill did not pass and the markets responded with a sharp decline. The Dow Jones Industrial Average dropped more than 777 points, its largest one day point loss in history. When the economy suffers a blow like that, it’s not just Wall Street in New York that feels it, but also Wall Street in Huntington. 

I fought successfully for vast improvements to the original “blank check” submitted by the Bush Administration. These improvements provided for a recoupment of taxpayer funds, a termination of “golden parachutes,” and rigorous oversight of the program.

In essence, I supported the bill because America’s finances are engulfed in flames. Congress needs to respond by putting out the fire, but we also must hold the arsonists responsible. And the arsonists were those who, for eight years, turned their backs on the middle class while refusing any regulation, restraint or responsibility on Wall Street. 

HOW WE GOT INTO THIS MESS:

For too long, many in the Administration and in control of Congress argued that any regulation of financial markets was bad regulation. Banks were permitted to merge with insurance companies and investment houses. (I cosponsored legislation to stop banks from merging with real estate brokers). “Self-regulation” or “voluntary regulation” was heralded by the Bush Administration. Even the Chairman of the Securities and Exchange Commission admitted last week that a decision to allow some investment banks to police themselves was unwise. The financial bubble and the lack of regulation created a climate of irresponsibility where people who could not afford certain mortgages were buying them, and institutions that could not afford to sustain those mortgages were selling them. These mortgages were combined with other investments, creating a house of cards – and the mortgages were the weak foundation. When the value of those mortgages fell, the entire house began to collapse. 

That collapse began last week. Auto insurance companies were reporting an inability to continue policies; major investment companies holding “bad mortgages” fell to bankruptcy and acquisition. Washington Mutual Bank failed. Merrill Lynch was sold. These cascading events, initiated on Wall Street, began unfolding to Main Street. 

WALL STREET AND MAIN STREET:

Without intervention, people like you and me, who had nothing to do with the Wall Street mess, might become victims of a financial catastrophe. Think of it this way: 

If insurance markets on Wall Street collapse, then you can’t get car insurance. If you can’t get car insurance, the auto dealerships on Jericho Turnpike and Sunrise Highway and Merrick Road can’t sell cars. What do they do? They layoff employees. If those employees can’t pay their mortgages, more homes go into foreclosure. If a few homes on your block go into foreclosure, your property values plunge (in fact the average homeowner has already lost over $14,000 in equity in their homes as a result of economic decline). Less credit, fewer jobs, declining property values all converge to make our current economic climate even worse. By some estimates, an abrupt downturn would reduce economic activity by between 5 and 10 percent in terms of production of goods and services, job creation and personal income.

HOW WE IMPROVED THE ADMINISTRATION’S BLANK CHECK:

On Friday, September 19, I participated in a conference call with Secretary of the Treasury Paulson and Federal Reserve Chairman Bernanke. What they said was stunning. The Administration wanted about $700 billion to inject capital into the markets. They argued that this would free-up Wall Street to begin lending again, and the economy could expand. 

We said, “no way.” 

The week that followed involved intense negotiations aimed at preserving America’s finances while protecting taxpayers. 

Here are the principle differences between the original plan submitted by President Bush and the version that we voted on in the House: 

• BUSH PLAN: $700 BILLION TOTAL AMOUNT
• COMPROMISE PLAN: Cuts the payment in half and conditions future payments on Congressional review. 

• BUSH PLAN: NO TAXPAYER PROTECTION
• COMPROMISE PLAN: Gives taxpayers a share of the profits of participating companies. Requires the President to submit to Congress a plan to repay taxpayers in full, with Wall Street making up the difference. 

• BUSH PLAN: NO LIMITS ON EXECUTIVE COMPENSATION
• COMPROMISE PLAN: No multi-million dollar golden parachutes for executives; no tax deductions for executive compensation over $500,000; penalties for golden parachutes of CEOs who have run their companies into the ground. 

• BUSH PLAN: NO OVERSIGHT
• COMPROMISE PLAN: A strong oversight board appointed by bipartisan leaders of Congress can overturn Treasury decisions. Also, an independent Inspector General will monitor all Department of Treasury decisions. And all transactions must be posted publicly online. 

• BUSH PLAN: NO HELP FOR STRUGGLING HOMEOWNERS
• COMPROMISE PLAN: In cases where the federal government has purchased mortgages close to foreclosure, the government can work with loan services to modify the terms of the mortgages for responsible borrowers who received predatory loans. We are trying to reduce the estimated 2 million projected foreclosures next year to prevent property values from continuing their decline.

WHAT ABOUT THE MIDDLE CLASS?

I have said it many times: It seems like if you’re a Wall Street investment house, the federal government will bail you out. If you’re living below the poverty line, the federal government will help you out. But if you’re somewhere in the middle, who’s protecting you? 

The bill I voted for tried to protect middle class taxpayers by insulating them from a catastrophic erosion of property values, a surge of new job losses, and the collapse of credit. 

But that’s not enough. 

I insisted this week that, in addition to voting on financial recovery legislation, the House of Representatives should pass an economic stimulus bill geared to middle class job growth. In fact, we did just that. On September 26, we passed a bill that invests billions of dollars in infrastructure improvements, roadway protection, clean drinking water, and school construction. It will help keep property taxes lower by providing a major federal share in state and local quality of life responsibilities. 

WHERE DO WE GO FROM HERE?

Congress needs to keep working. We cannot leave the nation’s finances in flames. I hope that we will be able to come together in a truly bipartisan effort to quell this crisis quickly, and I will continue to work with my colleagues to get a bill passed. 

I will also continue to press for two things: new reforms that ensure fairness, transparency, and personal responsibility in our financial markets, including strengthening enforcement by the Securities and Exchange Commission. And, federal investments in middle class families to make it easier for them to pay their kids college tuition, their health care, and lowers their taxes.


Click here to email Congressman Israel