October 8, 2008
Mr. John Norton
258 South Massanutten Street
Strasburg, Virginia 22657
Dear Mr. Norton:
Thank you for contacting me regarding the financial turmoil currently facing our country. I appreciate hearing from you, and I share your concern.
As you know, Congress recently considered an economic bailout package for financial institutions that were facing insolvency due to a sharp decrease in the value of their assets. The mortgage backed securities at the heart of this problem were significantly decreased in value, and resulted in the failure of several investment banks.
Following a week of serious financial turmoil, where two of the largest U.S. investment banks and one of the world’s biggest insurance companies collapsed, Secretary of the Treasury Henry Paulson met with Congressional leaders on September 18, 2008, and issued a proposal to aid troubled institutions by purchasing devalued mortgage backed securities.
Secretary Paulson’s proposal requested $700 billion to purchase the troubled
securities. This vague plan also requested broad authority for the Secretary to administer the funds, with hardly any oversight and no accountability for the irresponsible behavior that led to this situation.
After a week of negotiations on the Paulson proposal, the House of Representatives voted on H.R. 3997, the Emergency Economic Stabilization Act of 2008, on September 29, 2008. This legislation failed by a vote of 205-228. 1 voted against H.R. 3997, because while I agreed that Congress needed to act quickly and deliberately on this matter, I concluded that this measure was not the solution to the current financial turmoil.
H.R. 3997 would have been the largest corporate bailout in American history. This bill would have handed over 700 billion dollars of taxpayers’ hard-earned money to the very companies that made the bad decisions which led us into this mess in the first place. In addition, this legislation would have done little to address the irresponsibility that led us to this problem and could have a major inflationary impact.
This problem is complicated and serious, and acting expediently was important. Inaction was never an option, but I believe that Congress should have taken the time to consider all available options to choose the course of action that would best address this issue. I believe that there were better alternatives to address the problem than simply throwing $700 billion at one aspect of it, particularly when there were no assurances that this action would work.
One important reform that I fought for in this process was the easing of government-imposed “mark to market” accounting regulations that artificially devalue assets in times of market instability such as this. These accounting rules are useful and important in ordinary conditions. But in times of serious market instability like we are experiencing right now, they cause organizations to report their assets at far below the actual value. In the case of mortgage backed securities, many of these securities are based on sound mortgages, where the borrowers are making their payments. But when considered under mark to market rules in a time of market turmoil, these assets must be accounted for at far below their actual value, causing institutions to appear worse off on paper than they actually are.
H.R. 3997 contained provisions that called for a study of mark to market accounting, but did not contain any requirement to temporarily suspend the rules. I sent a letter, along with over 60 of my colleagues, that urged Chairman of the Securities and Exchange Commission (SEC) Chris Cox to suspend mark to market regulations in the midst of this market turmoil. Fortunately, on September 30, 2008, the SEC announced that it would ease mark to market accounting regulations to allow organizations to more accurately account for their assets in the current market conditions. I believe that this action will help keep this problem from being unnecessarily exacerbated.
I supported alternative initiatives that did not require assuming such a large debt by taxpayers, such as requiring the Treasury Department to insure mortgage-backed securities. I cosponsored H.R. 7223, alternative legislation that would have required such an insurance program, funding the measure through premiums provided by the industry. This legislation, while not perfect, would have made several adjustments to address the current crisis. H.R. 7223 would have encouraged organizations to bring profits earned overseas back home. This legislation would have taxed these funds at 0% if invested in distressed debt, as defined by the Treasury. In addition, l-I.R. 7223 would have suspended capital gains taxes for individuals and corporations for two years, encouraging corporations to sell unwanted assets, and encouraging the economic growth and job protection that will be necessary to lead us out of this turmoil. While this proposal was not a cure-all, it presented initiatives that were worthy of consideration, that would not have exposed taxpayers to a large debt.
Other proposals worthy of consideration included funding assistance to troubled institutions through a guaranteed bond program, which would be purchased by private investors, or a guarantee initiative similar to the net worth certificate program of the 1980s. These initiatives deserved scrutiny and consideration.
Unfortunately, these proposals were not seriously considered, and FIR. 3997 was brought before the House of Representatives without the option to amend the bill. As a result, H.R. 3997 failed by a vote of 205-228.
Then, on October 1,2008, the Senate considered composite legislation that included the provisions of H.R. 3997, as well as mental health parity legislation and several tax measures. This legislation passed the Senate by a vote of 74-25. On October 3,2008, this legislation was considered by the House of Representatives, where it passed by a vote of 263-171.
After much deliberation, I voted against this legislation because, again, while I recognized the seriousness of the problem at hand, I did not believe that the practically identical $700 billion Wall Street bailout approach was the correct course of action. This composite legislation included notable initiatives that were worthy of support, such as the child tax credit, alternative minimum tax relief, and energy tax credits. But ultimately the amount of risk this legislation would expose taxpayers to with no assurance of it actually working, made me unable to support this bill.
An additional concern that I had with this bailout was the lack of action to address the c of this crisis, including fiscal irresponsibility and a lack of resolve to provide the incentives to rebuild our domestic economy, including energy production. Congress also has an obligation to get to the business of enacting additional reforms to ensure that companies that have engaged in risky behavior in the past do not continue to do so in the future. I am encouraged to learn that hearings are scheduled to examine the roots of this problem, md I look forward to taking part in the aggressive attention to this issue.
I appreciate you taking the time to contact me. I feel it is important to keep an open line of communication so I can best serve the interests of the 6th District. I hope you will continue to be in touch as the 110th Congress debates issues of importance to the United States.
Again, thanks for the benefit of your conmients. Please feel free to contact me whenever I may be of assistance.
Member of Congress