"On the week of September 15th, the failures of the Bush-Kuhl Administration reached a critical mass. George Bush and Randy Kuhl have been asleep at the wheel for years, and now middle class America is paying the price for their incompetence. Those who state that the Federal government should never intervene in the market place are now crying for Federal bailouts. Alan Greenspan said, this is the most serious financial crisis our nation has seen in a century and we need real leadership in Washington, not more excuses and more failures.
Looking back to 2005, we are lucky that Randy Kuhl and George Bush failed in their attempt to privatize Social Security. Had they successfully placed Social Security on the stock market, the average senior would have seen their benefits cut by 24%. Today, I am announcing my plan to protect Main Street America while setting the guidelines to get the stock market out of the red and into the black before we end up in an economic depression the likes of which this country has not seen since 1929. " -- Retired Navy Commander Eric Massa
Taking a hard look at America's economic situation
On Friday, September 19th, President Bush asked for $700 billion from the American taxpayer. The United States currently has 305 million people1, this means that every man, woman and child in the country is now responsible for an additional $2,300. That's $9,200 for a family of four. You can add this on to the $30,000 every American already owes to pay down the national debt2.
America is currently in a financial crisis the likes of which have not been seen since the Great Depression. We got here because George Bush and his lock step supporters like Randy Kuhl have been asleep at the switch while companies have made huge bets on bad loans and offered outrageous mortgages just to make a quick buck. There is no doubt that Randy Kuhl is not the lone architect of this tremendous failure, but he was the only member of the New York delegation to actually co-sponsor legislation to privatize social security and for that he alone is responsible.
What is even more appalling is that while Wall Street was making these bets, they were rewarding themselves with truly outrageous compensation packages. The two people who steered Fannie Mae and Freddie Mac off a cliff (and forced the taxpayers to pay for it) are about to get $24 million just to leave.3 Thus far, Randy Kuhl has received $231,150 in campaign contribution from Financial Services, Insurance, and Real Estate Corporate Political Action Committees4. Eric Massa has continued to reject Corporate PAC contributions.
There is a better way forward, and Eric Massa will work around the clock for working Americans.
The Massa Plan for Economic Recovery on Main Street and Wall Street
Regulate Financial Derivatives- Most of the current subprime meltdown can be traced to one particular financial product, called the collateralized debt obligation, or CDO. The CDO was the product used to take a bunch of bad mortgages and make them look good by pooling them together and then creating a financial security that could be sold. Even worse, this product allowed the company initially approving the home loan to have no interest in whether or not the loan could be repaid. The companies, like Countrywide, only had a financial incentive to make the loan with the most fees, because they could then sell the loan to someone else. This meant they didn't even care if the person could afford the home loan they were taking.
This was able to occur because the CDOs, and all financial derivatives, are completely unregulated (derivatives are complex financial instruments similar to stock whose value is based on an underlying asset, like mortgages or stocks). How is that possible? In December 2000, John McCain's top economic advisor, Sen. Phil Gramm, had a 262 page amendment slipped into an appropriations bill that made it against the law for federal agencies to regulate these products.5 While there have been repeated calls to regulate derivatives, Randy Kuhl and George Bush have done nothing. It may be true that Randy Kuhl could not have stopped this from happening, but he could have been a voice for working Americans instead of a voice for George Bush.
Require Those Making Loans to Have a Financial Stake in the Loan- There is also a basic philosophical reason for this crisis, those approving most of these bad loans had no interest whether the loans could be paid off. As soon as a loan was approved the company would combine it with other loans and sell it off to someone else. That third party had to take the companies (and private ratings agencies) word that it was a good loan. This practice has to be stopped. To do so we must require that any entity making a home loan must hold on to at least 25% of the debt. This means that if someone defaults, the entity that made the loan is on the financial hook and thus has an interest in making the right loans, not just the most profitable ones.
Create a National Licensing System for Mortgage Lenders and Increase Penalties for Mortgage Fraud- Many of the bad loans that have been made were done fraudulently, with loan officers changingthe terms of the loan and leaving out key details, just so they could make more money. The regulations for loans need to be tightened and the penalties for those who mislead borrowers need to be significantly increased.
In addition a national system should be created to regulate, license, and monitor mortgage lenders. This will make it more difficult for dishonest lenders to mislead their clients. Randy Kuhl had a chance to do this but voted against it. In 2007, Kuhl voted against a bill that would have created a nationwide mortgage licensing system and registration of individual mortgage brokers and bank employees whooriginate mortgages. In addition, the bill would have established minimum standards for home loans and expanded certain limits on high-cost mortgages. It also would have prohibited brokers from steering consumers to mortgages they are unlikely to be able to repay. Randy voted no.6
Reinstate the uptick rule on all short sells- Short selling, basically betting that a stock will go down invalue, is an important tool for financial markets. When used properly it can help reduce the risk of a bubble, but short selling must be strictly regulated or it can be used to destroy otherwise healthy companies.
On July 6, 2007 the SEC eliminated the uptick rule7, another example of this administration and its appointees removing good regulations just to say they removed regulations. The rule had been in place since the Great Depression and was a key tool in preventing short sellers from destroying a company. The rule prevents short sellers from purchasing stock when the price is going down. This is especially important when a company may be rumored to be going out of business, and these rumors lead to short selling which reduces the company's capital position (because of decreasing share prices), which then causes the company to go out of business. When the rule was removed short selling increased to record levels, and critics immediately called for it to be reinstated.8 As the Bush Administration's appointees at the SEC removed this rule, Randy Kuhl did nothing.
Bring back the Resolution Trust Corporation, And Make Companies Pay to Participate- It is clear that if something isn't done with the bad mortgage debt that banks currently have, our entire financial system could collapse. To accomplish this we can look to our past. During the S&L crisis the government created this entity to take care of the assets of the failed S&L institutions. The Resolution Trust Company was created in 1989, spent the next seven years reselling the S&L assets, and then in 1996, unlike almost any government entity in history, did its job and then disappeared.9
Secretary Paulson has proposed a similar entity, and this is a very good way of moving past this crisis. At the same time the key will be that taxpayers are not just liable for the downside, but also will receive the benefits these companies receive when they get rid of this toxic debt. Currently the Bush Administration's details are so vague that this plan is actually longer than what they have submitted to Congress.10
RTC Requirements
- The entity must be nonpartisan and based outside of the treasury department. After Katrina and the Iraq war it is clear that writing the Bush administration a trillion dollar blank check is simply unacceptable. In addition it is unwise for a group of people leaving in less than a year to start this process and then simply leave.
- On This Week, Treasury Secretary Henry Paulson said that he didn't "want to make [the RTC] punitive" to the banks that made the bad loans. This is the wrong approach because it tells companies that they can make risky bets without worry because if they fail the government will come in and save them. This is known as "moral hazard" and it is something we must prevent. Considering the $231,150 in PAC money Randy Kuhl has received from these industries,11 it would be no surprise if he supports a plan that offers those responsible a get out of jail free card, but any plan to buy this debt must include penalties for those responsible or we risk it happening all over again in the future. In order to prevent moral hazard, and another potential crisis, banks and other institutions that participate in this new RTC must give up a portion of future profits (based on the amount of debt they unload) in order to be allowed to unload their debt into the RTC.
- Any bank participating must be an American company paying corporate taxes in the United States---taxpayers should not be propping up foreign banks.
- Companies that participate must pledge a portion of future profits to pay off the debts they have given to the taxpayers. If taxpayers are going to be responsible for the downside, they must be allowed to participate in the upside.
- The board of directors and officers in the company must trade in their outrageous retirement plans for those of any other government employee. If a company sells its debt to the taxpayer those at the very top of the company, who are responsible for this crisis, will not be getting a $25 million retirement package any longer. To be clear, this will not apply to the employees of the company,only to those at the top. It's also interesting to note that when Randy Kuhl had a chance to rein in ridiculous executive pay by letting shareholders to cast a vote on executive pay, Kuhl voted no.12
The Danger of the George Bush and Randy Kuhl Social Security Privatization Plan
In the 2005 State of the Union Address, when Randy Kuhl first got to Washington, President Bush declared that his top priority was to gamble Social Security on Wall Street. Eager to serve the President, Randy Kuhl signed up as a co-sponsor to Bush's Social Security privatization plan.13 We now know how deeply this would have hurt America's seniors had they been successful.
If a senior citizen had their Social Security check privitized and invested it in the S&P 500, one of the broadest stock indexs, that senior would have lost 24% of their assets.14 24% less money to buy groceries and prescription drugs with. 24% less to live on. We cannot risk the retirement benefits of 134,796 retirees in New York's 29th Congressional district or the millions of other Americans that rely on thissacred trust. Americans need a system they can count on, not a fluctuating privatized account. Eric Massa believes in strengthening our current system so that it is reliable for each and every American.
1 http://www.census.gov/main/www/popclock.html
2 http://www.usatoday.com/news/washington/2007-12-03-debt_N.htm
3 "Officials speak out on federal bailout," Urban, Connecticut Post, 9/11/2008
4 http://www.opensecrets.org/politicians/industries.php?cycle=Career&cid=N00026087
5 "'08 Campaigns Target 'Advisors,'" ABC News, 9/15/2008
6 [H.R. 3915, Vote #1118, 11/15/2007; D: 222-5; R: 64-127] http://clerk.house.gov/evs/2007/roll1118.xml
7 http://www.sec.gov/rules/final/2007/34-55970.pdf
8 "SEC told to act on short-sellers," Brewster, Financial Times, 7/3/2008
9 "Would a Resolution Trust Corp.-type solution work?," LA Times, 9/19/2008
10 "U.S. Bailout Plan Calms Markets, But Struggle Looms Over Details," Solomon, Wall Street Journal,9/20/2008
11 http://www.opensecrets.org/politicians/industries.php?cycle=Career&cid=N00026087
12 [H.R. 1257, Vote #244, 4/20/2007; D: 214-5; R: 55-129]
13 http://www.govtrack.us/congress/bill.xpd?bill=h109-3304
14 September 2007 close to September 17th 2008, http://finance.yahoo.com/q/hp?s=^GSPC&a=00&b=3&c=1950&d=08&e=19&f=2008&g=d |
