Special Weekend Post: Letter to Congress

Reading the news reports on the so-called bail out deal is quite frustrating for ordinary American taxpayers. While we all need a stable financial system, we don’t need a $700 Billion dollar bail out that rewards irresponsible corporate executives and stockholders as well as special interest groups at the same time. Nor should it bail out irresponsible homeowners who chose to overextend themselves financially. There are millions of responsible citizens who chose not to do this, and it is outrageous to expect them to bail out those who were imprudent with their own finances. We must draw the line somewhere. For far too long, both the government and individual citizens have been living beyond their means. It is time for everyone to assume responsibility for their actions. Don’t prescribe a medicine that is worse than the disease itself!

If the final deal involves providing money to the Treasury Secretary with the authority to “outsource” the solution to a Wall Street firm, or if it include special provisions for private interest groups, regardless of their intention, then I URGE YOU TO VOTE NO on this legislation. We don’t need another huge give away piled on top of our massive national debt for our children to pay off. It would also adversely restrict the next administration, whoever wins the election, so that we would not be able to address our critical needs for energy independence, rebuilding our infrastructure, or dealing with health care.

There are frustration news reports: These describe private interest groups, lobbyists on the right and left, already lining up to get their share of this massive pot of money. It has been reported that Rudy Giuliani is lining up his clients from the right for a drink at the trough, while on the left, ACORN is lobbying to get a share as well. These are likely only the vanguard of a variety of groups who will seek to profit at the taxpayers’ expense. We have already seen enough corporate greed and mismanagement that resulted in the current crisis. We have unfortunately also seen fraud, waste, and abuse of federal no-bid contracts in connection with the war, FEMA, and now the GSE’s, FNMA and Freddie Mac. We don’t need to open the vault for another stampede of self-serving and unethical patrons to fleece the taxpayers.

There is some good news: the failure and subsequent disposition of the insolvent Washington Mutual S&L on Thursday was evidence that the hysteria created by this crisis may be overblown. The FDIC and bank regulators who orchestrated the WAMU take over by JP Morgan Chase should be congratulated. They did more to restore confidence in the financial markets than all the clamor about the so-called “deal.” This transaction is also evidence that the system, if properly supported, is capable of handling the disposition of failed institutions if necessary while protecting the depositors and taxpayers. Perhaps Congress should give consideration to forming a federally chartered “bank holding” company to take over failed institutions until the assets can be disposed of properly or until a healthy financial institution can be identified. I would rather trust the FDIC and the bank regulators to handle this crisis than some scheme cooked up under duress over the weekend to outsource the clean up. Such a scheme would be fraught with conflict of interest.

The mortgage backed security insurance scheme offered by the House Republicans now under discussion is also not very attractive and is likely not a workable solution. Putting insurance on these “bad loans” now is like insuring a house after it has already burned down. While it is intended to have the private sector shoulder the burden of the bail out instead of the taxpayer, it will not address the problem of institutions that need operating capital to make loans and free up credit. Any cash infusions by the Treasury should be done like a commercial transaction whereby the taxpayer gets a secured preferred position in the stock of any institution that takes advantage of the capital infusion. Additionally other conditions such as limits on executive compensation, warrants or options for the benefit of the taxpayer, and mandatory underwriting guidelines for federally related mortgage loans should apply. Any bail should also include a provision to establish a special inspector general’s office to investigate allegations of fraud, waste and abuse. Further, there should be a criminal felony provision for anyone convicted of such activities with stiff mandatory sentencing guidelines so that there is a deterrent in place to make it clear that such activity will be prosecuted to the fullest extent possible.

I know that this is a difficult task; however, it would be better to have no deal rather than a bad deal. That would simply be throwing good money after bad. Please don’t let that happen.