Emergency Economic Stability Act

Floor Speech

EMERGENCY ECONOMIC STABILITY ACT -- (Senate - October 02, 2008)

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Mr. REED. Mr. President, middle-class families are being squeezed financially. They feel that the economy and the Government are just not working for them.

The vast majority of Americans are unhappy with the direction President Bush has led us over the last 8 years.

For most of the last decade there has been far too little oversight of the financial marketplace and too little help for the middle class.

I share that frustration. I have voted time and again for common sense tax cuts for the middle class, developing alternative sources of energy, like solar and wind power, greater investment in our roads and bridges, improving our schools, and expanding health coverage for children, new regulations to protect consumers, a responsible end to the war in Iraq and a host of other important initiatives, but the sad reality is that time and again those efforts have been dashed by filibusters and vetoes by the President and his allies.

But as real as that frustration is, the economic situation requires us to act swiftly and responsibly.

The choice now is to act on this bill or watch as this economic crisis makes the already difficult economy even worse. If we fail to act, there will be more impacts on the lives of an already struggling middle class--job losses, pension losses, and an ever harder time paying for college.

That is why we must act, and that is why we must pass this legislation.

When this proposal was first unveiled, it was little more than a blank check, and I know the people of Rhode Island were outraged just like me.

But this proposal is vastly different.

Gone is the blank check.

In its place there are strong protections for the taxpayers, a greater likelihood of success, better oversight, and, most importantly, a chance for a return on this investment in stabilizing the economy.

When the President sent us his blank check, it was clear that we needed to make sure we followed the same principle anyone follows when they lend money which is that you get paid back. That is why I fought and got bipartisan support for a provision that ensures taxpayers do not remain exposed to all of the risks of this program by requiring if you participate in this taxpayer-funded program, that taxpayers get a piece of your future profits through a share in the profit of the assisted company.

This device, known as a warrant, is nothing new, and it can be very effective. In fact, in the Chrysler loan guarantee, warrants were used and resulted in a profit to the Government and in turn the American people. Warrants were also a part of the successful effort to revive the airline industry after 9/11. Most recently, Warren Buffett included them in his deal with Goldman Sachs last week, as did the FDIC in its recent brokering of the purchase of Wachovia by Citibank.

Warrants allow the taxpayers to get their money back and more if a participating company rights itself. In other words, as the company's stock goes up--as it should over time--taxpayers get to participate in that appreciation and even enjoy a reasonable premium.

No one will be shocked to learn that the President and Wall Street opposed my idea for warrants. But when faced with the simple fact that any Wall Street business transaction would exact no less of a price, protecting the taxpayer won and the special interests lost.

There are no guarantees that the assets purchased under this program will eventually appreciate, though that is certainly our hope, but at the very least warrants help safeguard the taxpayer against losses on those assets that underperform.

It is only right to ensure that the taxpayer not foot the bill for this rescue plan because the point of this economic rescue plan is to provide liquidity throughout our credit markets, not to line the pockets of those looking to make a buck on the backs of the taxpayer.

We also said ``no'' when it came to the President's proposal to spend all these funds with zero oversight and transparency. Now, there is a clear requirement that all of these arrangements are transparent and above board. Moreover, there will be a panel of outside experts who must report to the Congress and the American people on the Treasury Secretary's use of these funds and submit a regulatory reform plan in January 2009 so we can work on new laws to prevent a similar case of market failure. And, we included provisions to ensure that no-bid contracts are not awarded, contracting rules are followed, conflicts of interest are prevented, and courts have the authority to review any questions about this law.

And, we took a strong first step when it comes to the excessive pay of too many executives on Wall Street who got us into this mess. Indeed, under this bill, there will be no golden parachutes for those executives who helped create this financial crisis. Instead, they will see those sweetheart deals go away, and, indeed, the Securities and Exchange Commission and the FBI have launched investigations into many of these questionable financial transactions.

Lastly, we should not overlook that this bill also extends a number of tax cuts that will generate investments in alternative sources of energy and green job creation as well as a tax cut for approximately 92,000 middle class Rhode Islanders who would otherwise face the Alternative Minimum Tax.

This bill is necessary, but not perfect. It should be stronger when it comes to impacting those who got us into this mess, and it should contain some of the consumer and investor protections and accounting reforms I have called for over the years. There should be more resources to prevent foreclosures, not to aid people who took out a mortgage they should not have, but to protect the property values and stability of those neighborhoods facing a growing number of foreclosures.

If we don't follow up this vote with increased transparency and better regulations of the financial marketplace, we could very well find ourselves debating another economic rescue package in the not too distant future.

Indeed, I have held eleven hearings over the last year and a half in an effort to bring these regulation and accounting issues to the attention of my colleagues and the administration. These may have seemed like arcane hearings to many, but the reality is those who were supposed to enforce the rules of the marketplace and protect the economy were asleep at the wheel, or worse, blinded by a misguided ideology that over-relies on deregulation. Time and time again, witnesses at these hearings said everything was okay or was at least manageable. They said we should not have hearings and that less oversight and regulation would cure any problems. Now, two of the companies that testified don't even exist. The status quo is unacceptable, and I am hard at work on legislation to reform oversight of Wall Street because the current system failed.

The bill is prompted by a systematic failure by all the financial regulators who turned a blind eye to the problems that had been identified well before this crisis erupted.

Reckless and irresponsible business decisions brought us here, but lax oversight and poor risk management by regulators also played a starring role.

No one is happy that we have to act, but we need to act to avoid further damage to our economy. The task before us now is to protect people's jobs and retirement savings, and do our best to craft a solution to the credit crisis that prevents our economy from grinding to a halt.

The question must also be asked: How can we prevent this from happening again?

The administration found that it could no longer control events. Instead, events controlled the administration as credit markets have stubbornly remained frozen and banks still refuse to lend to each other. Small businesses are finding it harder to get credit, as are consumers.

No one takes lightly voting for a $700 billion package, even with taxpayer protections I and my colleagues built into it. These sophisticated institutions and complex instruments impact very concrete, everyday assets, from homes to retirement savings. We must act now to protect these important assets.

Fundamentally, this is about protecting the savings and well-being of all Americans and providing access to capital and credit for businesses and governments to make investments in our future.

The Senate has taken the first step and I urge the passage of this legislation.

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