Letter to my Congressman

* Names have been changed to protect the innocent

Mr. Wolf,

After watching last night's senate debate on the Emergency Economic Stabilization Act and reading the text of the legislation for myself, I feel compelled to share my views on this issue in the hopes that you will change your mind from your previous vote. While a lot of work has been put into this plan, it still does not address the true issue behind our problems. I agree that the plan will a) stabilize the stock market; b) rid banks of troubled assets to encourage/assist them in lending; and c) most likely profit the Unites States government after a period of years. However, with this being said, I believe that this act is still contrary to the best interests of the American people.



A number of things amaze me about the events of the last few weeks. First are the arguments that we need to act or else millions of Americans will not be able to obtain credit to buy homes and cars. Isn't that one of the basic reasons why we are having this problem? We extended lines of credit to people who should not have been eligible, and we are suffering because they defaulted. What lies next, and is supported by a number of studies in addition to numerous credit card companies raising capital to offset losses, is the impending collapse of our credit card companies when millions of individuals start defaulting on their credit card debt.



The second thing that amazes me is the fact that Congress has rushed to put together a plan so quickly, and there is still no program established to manage these funds. Why the rush when the act that you propose still gives up to 45 days for the Secretary to determine how he will spend the money you authorize him? Shouldn't this be a requirement before we pass this act? I've included an excerpt detailing all of the guidelines that have yet to be established, most of which should be essential to know prior to the enactment of this Act:



Section 101(d) PROGRAM GUIDELINES. — "Before the earlier of the end of the 2-business-day period beginning on the date of the first purchase of troubled assets pursuant to the authority under this section or the end of the 45-day period beginning on the date of enactment of this Act, the Secretary shall publish program guidelines, including the following:



(1) Mechanisms for purchasing troubled assets.

(2) Methods for pricing and valuing troubled assets.

(3) Procedures for selecting asset managers.

(4) Criteria for identifying troubled assets for purchase."



The next excerpt deals with preventing unjust enrichment.



Section 101(e) PREVENTING UNJUST ENRICHMENT. — "In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset. This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code."



It should go without saying that we should not pay a higher price than what the seller paid to purchase the asset. Should we not take it a step further and state that we not pay more than current fair market value if we are truly worried about unjust enrichment?


Section 104 outlines the membership of the Financial Stability Oversight Board, which include the following individuals and who will meet 14 days after the first exercise and every month thereafter:



(1) the Chairman of the Board of Governors of the Federal Reserve System;

(2) the Secretary;

(3) the Director of the Federal Housing Finance Agency;

(4) the Chairman of the Securities Exchange Commission; and

(5) the Secretary of Housing and Urban Development.



It follows later in 104(g) that " (g) REPORTS.—The Financial Stability Oversight Board shall report to the appropriate committees of Congress and the Congressional Oversight Panel established under section 125, not less frequently than quarterly, on the matters described under subsection (a)(1)."



I hope you agree with me when I tell you that this does not provide adequate oversight of money that can already be spent by the time any action can be taken by the board or the panel. Perhaps the board should meet after the establishment of the program guidelines and BEFORE any money is spent and the panel should be required to meet more frequently than a quarterly basis.



Section 108 outlines conflicts of interest. I've included the text below, which is interesting considering the Secretary's decision to rescue AIG, which saved his former firm of Goldman Sachs approximately $20 billion, and another decision to hire Morgan Stanley in August to advise the GSEs, which later collapsed to the cost of billions to taxpayers and investors.



"SEC. 108. CONFLICTS OF INTEREST.

(a) STANDARDS REQUIRED.—The Secretary shall issue regulations or guidelines necessary to address and manage or to prohibit conflicts of interest that may arise in connection with the administration and execution of the authorities provided under this Act, including—



(1) conflicts arising in the selection or hiring of contractors or advisors, including asset managers;

(2) the purchase of troubled assets;

(3) the management of the troubled assets held;

(4) post-employment restrictions on employees; and

(5) any other potential conflict of interest, as the Secretary deems necessary or appropriate in the public interest."



Being that I am simply a school teacher and a veteran of both Operation Enduring Freedom and Operation Iraqi Freedom, I will not begin to pretend that I understand the sections on executive compensation. However, I did read through Sections 111 and 302, and what troubles me is that I don't believe it ever states a specific dollar amount when it comes to executive pay. I suggest that we tie it to the salary of the President of the United States, but I think that is even too much.



What concerns me most about your statement and many similar statements made by supporters of the act is that you have heard from tens of thousands of voters who have asked you not to support this legislation. However, the assumption is that most of these people are not educated with regards to the overall impact if we do not act now. I contend that many of us understand the impact all too well, and we urge you not to support it.