Initial Response to Bailout Bill
October 7th, 2008I’m issuing a press release shortly that will be in substantially the following text.
PRESS RELEASE – James Bordonaro for Congress- First District of KS.
James Bordonaro, the Democratic candidate for the First District of Kansas issued the following press release concerning the newly passed Emergency Economic Stabilization Act of 2008.
On Friday, the House of Representatives gave final approval to the Bush Administration’s $700 billion bailout package for Wall Street by passing an even larger Senate version of the bill that the House had rejected only days before that added more than a $100 billion in new tax breaks.
Jerry Moran, the incumbent Republican Congressman for the First District of Kansas, recently issued a statement to explain his decision to vote against both versions of the bill. Mr. Bordonaro assailed his explanation and criticized Mr. Moran for not taking steps to address the crisis in the credit markets early on.
Mr. Bordonaro, stated that he has been calling for reforms in the regulation of the financial industry since before the collapse of the investment bank, Bear Stearns, Inc. in March of this year. He also stated he has long been urging Congress and the Bush Administration to address the underlying problem of a severe downturn in the nation’s housing market triggered by the growing number of home defaults in the subprime mortgage market. “The root cause of the problem is an overextension of leveraging by many of the nation’s banks and brokerage firms that were heavily invested in so-called ‘collateral debt obligations.’ These are securities whose value is tied to underlying pools of mortgages.” He went on to explain that because of the growing number of mortgage defaults, financial analysts are having difficulty in determining the value of these derivative instruments on firms’ balance sheets leading other companies to reduce the extension of credit necessary to finance day to day operations.
Mr. Bordonaro said it was unfortunate that the downturn on Wall Street has spilled over to Main Street but it should not have come as a surprise that the combination of recent events like the collapse of Lehman Brothers and rescue of insurance giant A.I.G. coupled with a sluggish job market have now collided to thwart economic growth both domestically and abroad. He stated that The Dow Jones [industrial average] and virtually every other trading index around the world has been hammered in recent weeks. We know that Republican ideas of across the board deregulation got us in this mess and now the costs to the average family to buy a car or for a small business to expand have risen sharply.”
He said he also believed that Kansas families have been aware the United States is close to a full-blown recession for quite some time and have been demanding their elected representatives take action. He went on to directly criticize the incumbent stating, “The failure of Rep. Moran and his own party to address the economic crisis which has been gathering over the past several years has had a significant impact on all working people of Kansas. It also confirms his interests are not based on kitchen table economics but on holding court in Washington DC instead of helping middle class families trying to buy homes, build businesses, or survive tough times.”
In particular, Mr. Bordonaro criticized Mr. Moran’s statement by saying, “Jerry Moran laid out 3 provisions he believed would be helpful in resolving the credit crisis. He wants the FDIC to increase its guarantees of personal bank accounts from $100,000 to $250,000; a change in the accounting procedure known as ‘mark to market’; and that the government should now guaranty loans between banks. The first two proposals were already part of the bailout package he voted against and I can’t believe he is seriously proposing that the taxpayers get involved in risky loans between banks without adequate collateral. What would the costs to the taxpayer have been if the government had guaranteed the loans of recently failed banks such Indy Mac and Washington Mutual.”
He went on to state, “Kansans need a careful and measured response to keep markets working and prevent the further unwinding in credit markets.” I recognize that this Administration has little credibility left when it comes to understanding and dealing with the economic challenges of our times but if Jerry Moran doesn’t have faith in Secretary Paulson and Fed Chairman Ben Bernanke to carry out the bailout package he should just say so rather than put forth proposals that are already on the table. Mr. Bordonaro said that he believed that voting no twice to the “emergency” plan after a year of bankruptcies and collapses was unacceptable and shortsighted. “Mr. Moran was wrong to reject the compromise House plan, failed to create an alternative, and will seek to blame someone else for his party’s failed policies of the last eight years.” “I don’t blame him for voting against the Senate version because that bill was chock full of pork, but every member of Congress could see that once the House version failed the Senate was going to lard up its version with special interest tax breaks in order to ensure passage when the bill came up again in the House. Now, we’ve got another $110 billion of additional spending which violates the Pay Go rules adding to the national debt and I don’t call that leadership.”
Mr. Bordonaro went on to say that the government already had instituted a program to let banks use more of their illiquid assets as collateral to borrow federal money and that a better proposal would be further reductions in the Fed Funds rates which is the benchmark for overnight loans between banking institutions. Asked about the potential for an increase in inflation in reducing short term interest rates, he stated that such a move would be a safer way to free up capital for banks to continue to lend in the near term and expressed more concerns about inflationary pressures from continued borrowing by the government to finance its budget deficit which is projected to reach $480 billion for the coming fiscal year which started October 1st. Demonstrating his command of economic issues he stated, “Investors should closely watch the LIBOR [London Interbank Offered Rate] and the spread between U. S. Treasury notes to determine if the credit markets are easing in the wake of the passage of the bailout bill.” He cautioned that in his opinion it will take several months before any actual illiquid securities are purchased by the government but that the markets had already largely priced the bailout bill into their forecasts and that future down turns in stocks, especially on the foreign exchanges, were indications of a general, worldwide, economic slow down coupled with a delayed reaction by European banking and real estate institutions to the problems in the American marketplace. He pointed to the drop in wholesale oil prices as evidence that growth would become stagnant through at least the first two quarters of 2009, stating, “The oil markets are trading futures which look out about 6 months and are predictive of the perceived demand on a global basis which is closely tied to overall economic activity.”
Mr. Bordonaro said that he knows tough choices must be made and he will bring the creative ideas and leadership that are necessary. “One of the additional things Congress needs to do is to exercise oversight of the unregulated market in credit default swaps. We’ve got trillions of dollars in notational value outstanding on corporate obligations with significantly less value and the third parties which are writing these securities have far too little capital to back them up.” Another proposal which Mr. Bordonaro has endorsed is to permit bankruptcy judges to modify the terms of mortgages which he says is the best way to keep people in their homes. “I only want to include protection for those individuals who actually reside in their homes not for those who gambled on ‘flipping houses’ to make a quick buck.”
Mr. Bordonaro stated that “more broadly, we’ve got to refocus our economy on creating high wage jobs in the renewable energy sector so we can get ourselves away from sending hundreds of billions of dollars to oil producing nations in the Middle East. Having a steady income will permit people to pay down their mortgages and will reduced the number of bad loans on bank balance sheets thereby freeing up more lending.”
Mr. Bordonaro concluded his remarks by stating he knows that the next Congress must act with speed and foresight to clean up what others leave behind. He said, “It is time for people in high places to understand rejection first hand. This election voters are free to choose between fear and negativity of Republicans or new ideas. This November your clear choice will be between short-sighted representatives counting points in Washington instead of providing the economic foundation for the future of the Kansas economy and the nation as well.”