Congressman Tierney's Opinion Editorial first appeared in The Salem News on September 26, 2008.
It seems that nearly everyone agrees that something systemic must be done to address the looming financial crisis. Still, the Bush administration's assertion that Congress should immediately, without hesitation or question, pass a carte blanche demand that the Secretary of the Treasury have unbridled authority to use $700 billion of taxpayers' money to buy assets of questionable value from entities that acted horribly, is totally unacceptable.
This is, after all, the same administration that threatened imminent danger to the United States if it did not get immediate passage of the Authorization for the Use of Military Force (AUMF) regarding Iraq, only to have America learn, to its detriment, that such representations were false.
Treasury Secretary Henry Paulson, while considered a smart man, is also one who, along with President Bush, Alan Greenspan and a host of others, continued over decades to fight off even reasonable regulation, failing dismally to supervise and oversee the financial industry.
Over the last 18 months, Secretary Paulson first told us everything was fine. He then followed with word of an impending crisis that was supposedly contained. Next, he embarked on a series of unsuccessful "fixes" for an economy deemed "on the brink," and last week, he proposed the largest government intervention since the Great Depression.
We are now faced with the consideration as to whether one should attack this crisis as the administration does by targeting illiquid assets that have lost value and "buying" them in order to halt the spiral of falling prices; or, whether to consider the opinion of other economic experts who suggest allowing the Federal Reserve to use its extensive funds and authorities to manage liquidity and address the lack of capital in entities by forcing them to raise equity and halt dividends.
Members of Congress owe it to those they represent, as well as to all Americans, to be skeptical as they consider possible solutions. Rash action and ill-considered legislation could have as dire and far-reaching financial consequences as the vote on the AUMF.
First, we should insist that leaders of both parties look beyond the "usual suspects" in seeking economic advice. A perspective different from those offered by the well-known economists and the other experts should be sought out.
If it is decided that support only exists to address the problem as the administration sees it — one of illiquidity — Congress will be focusing on modifying the bare-bones administration proposal.
Every premise of the administration's bailout should be questioned and examined, and alternatives must be analyzed.
How will the questionable assets bought with taxpayer money be valued? If the financial conglomerates could not find buyers, how does Secretary Paulson propose it be done now?
How will it be done without conflict or corruption, and with accuracy? Who will determine which assets will be purchased? How exotic will assets considered for purchase be? Who will decide which entities will be covered, and how will it be monitored?
Questions abound, and good answers have yet to be heard. In fact, we are told by Mr. Paulson and Federal Reserve Bank Chairman Ben Bernanke that there is no guarantee their proposal will succeed. We have yet to hear them specifically describe the consequences of inaction, compared to what happens if this plan fails.
While we know that both run extraordinary risks of financial crisis, we also know that if the latter occurs, the taxpayers will be out some $700 billion in addition to the market failure.
Congress should act. But not act rashly. It is wise and prudent to take reasonable time (not weeks or months, but days, and possibly a week or so) in order to consider all factors, consequences and alternatives. We should establish some basic principles that should inform our direction. I offer a few here:
Any taxpayer fund should have a reasonable basis for the determination of its size;
The funds controlled cannot be left to one person, the Treasury Secretary, to manage without oversight and with immunity;
We should consider not just attempting to buy assets of highly questionable price and value. If the government is to act, it should exact a better position for itself (the taxpayers) and demand an equity interest;
No executive involved in an entity's demise should receive any bonus or "golden parachute," and their compensation should be adjusted to reflect the situation;
To the extent control of assets is taken, there should be a reconfiguration of basic mortgages and mortgages should be restructured with a reduction in payments to prevent foreclosures where appropriate;
Bankruptcy courts should be given the authority to adjust mortgage terms to prevent foreclosure where appropriate;
Regulatory reforms should focus on transparency, agency consolidation, accounting corrections and supervision, and requirements for proper amounts of capital; and,
Potential for having the cost of intervention paid for eventually so as to reimburse taxpayers for any anticipated loss, should be fully explored and pursued where possible.
Some of this may seem punitive to Wall Street gurus, but they were, after all, the ones primarily responsible by their misconduct.
For those who ask why Wall Street should participate in what might seem a "bad deal" for them, we must remind them that the alternative is to go out of business. That is the type of predicament they have put us in, and we need to be mindful not to follow the phony "free market" mantra some have espoused, where, as it is said, the profits are privatized, but the risks are socialized.
John F. Tierney, D-Salem, is currently in his sixth term as congressman for the Sixth Massachusetts District.