Oct 06 2008

Why the Rescue Plan was Necessary

The following op-ed began appearing in South Carolina newspapers on October 5, 2008.

Congress faced an unpleasant but necessary choice of approving the financial rescue plan.  We did not have the luxury of kicking the can down the road like we’ve done with Social Security and entitlements.  We could not hope somebody braver than us would come along and have courage that we could not muster.  This was on our watch and time was of the essence.


The conservative Heritage Foundation said it was, “only a matter of time” before the fallout hit Main Street “with potentially devastating economic effects for typical American households.”  I agreed with their analysis but they were not saying anything people in South Carolina didn’t already know.


The credit crisis gripping our nation was already having a negative impact on Main Street.  I heard from the retirement communities where retirees rely on dwindling 401(k)’s and the plumber who is worried he can’t get a short-term loan to make payroll.  I heard from the restaurant owner who wants to expand and the college student and parents who were worried college loans were drying up.  And I heard from the homeowner who fears for her job and the auto dealer who is about to close because customers cannot get credit.


A primary motive was to act and ensure credit was available at reasonable rates and near-collapses leading to fire-sale prices like Wachovia did not spread throughout the nation.  Banks and lending institutions -- the financial engines of our economy -- are at tremendous risk.


For the common good, we had to find a solution to this problem before more people lost their homes, businesses shut their doors, college dreams were dashed, and additional jobs were lost.  Simply put, my support for the financial rescue plan was about helping the people I grew up with and the people I represent – not Wall Street.


Major Revisions in the Law


The bill that passed the Senate had dramatically changed since it was first introduced.


One common misconception is the plan will cost taxpayers $700 billion.  Over time and as the economy improves, the taxpayer will recoup money from the sale of troubled assets.


Warren Buffett, one of the most respected business leaders in our nation’s history, even thinks that after all is said and done taxpayers will actually make money.  Buffett said, “If we could do the deal that is available to the United States government and have its staying power, and its borrowing costs, we would make significant money. … I would love to have 1 percent of the profit or loss that results from buying these assets from troubled financial institutions.”


Either way, the costs to the taxpayer will be less than $700 billion and significantly less than the costs of a deep, severe, long-lasting recession.


A major improvement was an increase from $100,000 to $250,000 in Federal Deposit Insurance Corporation (FDIC) insurance on bank accounts and the Securities and Exchange Commission (SEC) revision of ‘mark to market’ accounting practices.


Another important change was that all funds collected will go toward retirement of our national debt – not shady groups like ACORN pushing a far left political agenda.


The legislation also contains important safeguards such as an oversight board to review the governments acquisition of troubled assets, limits on executive compensation packages and a prohibition on ‘golden parachutes’ for failed executives.  A ‘clawback’ provision allows the government to recover bonuses and incentive compensation paid to a senior executives based on materially inaccurate information.


Financial Rescue One Piece of the Puzzle


Unfortunately, we have many difficult days ahead as our economy tries to regain its footing.

Just last week jobless claims reached a seven year high and August factory orders fell by the largest amount in two years.  It’s a clear sign that the manufacturing sector – which is a major driver of our state’s economy – is already feeling the effects of the credit crunch.


This package won’t solve all of our problems, but without it the American taxpayer faces even greater exposure.


Where From Here?


I remain committed to making sure the root cause of the problem -- mortgages being given to people who never should have had them -- does not happen again.  It is obvious lending standards and procedures were compromised.


I support the FBI and federal agencies looking into Wall Street firms, mortgage lenders Fannie Mae and Freddie Mac, and other financial institutions at the core of this disaster.  We must find out what happened and hold the appropriate people and companies responsible.


As we learn more about how the house of cards was constructed and eventually came tumbling down, we must put better regulations and oversight in place.  Failure to act only lays the groundwork for similar disasters in the future.


The financial rescue plan will prove to be the first step – not the last – in cleaning up our financial mess.