You may recall that I called Ray LaHood’s office to ask him not to vote for the pork-laden $700 billion bailout bill. He voted for it anyway, which shows just how much pull I have. Ha ha. Yesterday, I got a letter from him thanking me for the call and explaining his position. I thought you might be interested in hearing what he had to say (any typos are my fault):

Thank you for contacting me regarding the current financial crisis facing our nation. It was good to hear from you, and I appreciate having your thoughts on this most important issue.

Currently, our nation is facing the most significant period of economic turmoil since the Great Depression. Never before have so many Americans been at risk of losing, not only their homes, but also their lifelong retirement savings. Many questions have emerged over the last several weeks regarding how this situation occurred and what will the recently signed into law Emergency Economic Stabilization Act accomplish. As I attempt to explain the answers to both, I will also detail my reasoning for supporting this legislation to protect not only homeowners across this nation, but also the nest eggs of millions of baby-boomers facing retirement.

The obtainable dream of homeownership has always been one of the stapes of our great nation. In this country, we are fortunate that for millions of American citizens, this dream often becomes a reality. Through low interest rates and policies that encourage homeownership, our nation has maintained a competitive housing marketplace. Lending in the sub-prime mortgage market has contributed to this high rate of homeownership, as many borrowers would not have had access to financing in the prime or conventional market. Unfortunately, it is clear that some sub-prime lending has been excessive, and some borrowers have been subjected to abusive lending practices. The growing number of mortgage foreclosures across the U.S. has been the catalyst for widespread market failure. Under the false assumptions that home values would continue to increase, many Americans were financed into homes they could not truly afford. The mortgages for these homes were then sold from local banks to large investment banks, such as Merrill Lynch, Lehman Brothers, and others, and then rolled into mortgage-backed securities. As the values of homes across the nation fell, many Americans often owed more with interest payments than the actual value of the home in which they were currently living.

When millions of Americans began defaulting on their mortgage payments and foreclosing on their homes, these large investment banks were the first to feel the financial pinch. Unfortunately, these banks were also major players in the domestic and international trading markets, controlling the investment portfolios of millions of hard working Americans. As the liabilities obligated by these banks began to exceed their total valued assets, they began failing one at a time, and the U.S. and world markets began to negatively feel the impact. At the same time, many major lending banks, such as Wachovia, Washington Mutual, the Ameribank, were also affected by the burst of the housing bubble. As more and more Americans were foreclosed, these banks became laden with valueless assets and were no longer able to maintain enough valued assets to function appropriately. As such, these banks were forced to discontinue offering loans as the credit markets effectively became frozen. As a result, millions of Americans who had worked hard and obtained good credit ratings could no longer obtain loans for simple purchases, such as cars or farm equipment.

As such, I felt obligated to work with my colleagues in the House of Representatives and Senate to come up with a legislative solution to prevent hardworking Americans from losing their hard earned savings. In principle, other than setting regulatory marks, I remain fundamentally opposed to government intervention in the market place. However, in this instance, the consequences of inaction and thus potential worldwide economic and market failure, far outweighed any risks associated with taking action to prevent the spread of one of the largest market failures the world would have ever seen.

The recently enacted Emergency Economic Stabilization Act was a strong bipartisan piece of legislation, the result of hundreds of hours of meetings and negotiations between leaders in the House, Senate and the Administration. This Act was aimed at directly fixing the root cause of the current problem by authorizing the Treasury to purchase large amounts of these now devalued assets, mostly mortgage-backed securities, which are currently plaguing the markets. Under this new law, the Treasury is authorized to initially purchase up to $250 billion in these assets. After which, the Treasury is authorized to come back to the President and formally request additional funds; however, the disbursement of any further funding can be blocked by Congress at any point. It is important to note that the government is expected to earn some, if not all, of this money back once the market for mortgage-backed securities settles down and the Treasury sells the securities back to private holders. At such a point, it is also possible that the government could potentially make a profit, as they will be selling back these securities for more than the original purchase price. The government would also take an equity stake in the companies that participate in the program, taking stock or debt in those companies to protect taxpayers from any potential losses associated with the eventual sale of any assets purchased.

I have also been frustrated with continued reports of corporate executives and CEO’s who have lost billions for their respective companies, retiring with large compensation packages. I was adamant that whatever legislation be brought forth before the House include strict provisions effectively eliminating the practice of allocating ‘golden parachutes’ for departing executives. I was pleased that the final version of the Emergency Economic Stabilization Act effectively ended this practice for any firms which take this government assistance. With evolving negotiations, I was also pleased that the final product signed into law included key other provisions fought for by House and Senate Republicans. These included requirements that the Treasury set up a program for financial firms to allow them to purchase insurance for their mortgage-backed securities, and increasing the Federal Deposit Insurance Corporation (FDIC) deposit insurance limit from $100,000 to $250,000, protecting more small business owners across the nation. Language was also included to mandate that the Treasury use its newly awarded leverage servicers of mortgages to modify loans. The legislation also sets up important oversight and transparency provisions by establishing an oversight board made up of federal banking regulators, with an inspector general to watch over the entire program.

In the final days, before sending this legislation back to the House, the Senate also included the extension of several significant expiring tax provisions aimed at lessening our dependence on foreign oil and lowering the tax burden for millions of Americans. The legislation extended current tax breaks for producers of renewable energy, providing tax credits for further research and development in the clean and renewable energy industry. It also provided tax relief to victims of the recent natural disasters, including the springtime floods which affected large portions of the Midwest. This legislation also extended the patch for the Alternative Minimum Tax for another year, lowering the tax burden for 22 million Americans, preventing them from having to pay a tax rate originally intended for the wealthy elite.

In the end, I believe my vote in support of this legislation was a vote to continue to keep the American economy strong, a vote to continue to protect the life savings of millions of Americans, and a vote to prevent one of the potential largest market crashes our world would have ever seen from occurring. Should you have further concerns or comments on this issue or any others, please feel free to contact me again.

Sincerely,
Ray LaHood
Member of Congress