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Letter Regarding The Bailout
September 24, 2008
The Honorable Chris Dodd, Chairman
The Honorable Richard
Shelby
Banking Committee
United States Senate
Washington, DC 20510
The Honorable Barney Frank, Chairman
The Honorable Spencer
Bachus
Financial Services Committee
United States House of
Representatives
Washington, DC 20515
Dear Chairmen Dodd and Frank, Senator Shelby and Representative
Bachus:
Public Citizen is a national non-profit organization that
represents consumer interests in the courts, executive branch agencies, and
Congress. We are grateful for your commitment to protecting the American public
in this time of economic crisis. We write because we are deeply concerned with
the Bush Administration’s proposed $700 billion purchase of mortgage-backed
securities.
Any plan of this kind must include specific provisions to ensure
that it advances the best interests of the American public and is not simply a
massive giveaway of taxpayer funds to private industry. Such protections are
missing from the Bush Administration proposal. Any bill to remedy the current
financial crisis should include four types of provisions:
1. Consumer Protections and Assistance. Any plan must
protect and provide relief to consumers, not just industry titans. At a minimum,
it should provide
• relief for distressed homeowners in by authorizing loan
modifications;
• a cap on the level of interest that firms can charge to
consumers; and
• restoration of states’ authority to protect their citizens
from abuses in the lending industry.
2. Government Accountability and Transparency. This
crisis was caused in large measure by a lack of oversight and accountability.
Now the Bush Administration proposes more of the same. The Administration’s
proposal authorizes the Secretary of the Treasury to “take such actions as it
deems necessary” to carry out its responsibilities. This is an unacceptably
broad delegation of congressional power. If the Congress fails to give the
Treasury Department real guidance on how to exercise its authority, it will risk
having the entire scheme struck down as unconstitutional.
Under the Administration’s proposal, decisions by the Secretary of
the Treasury would also be “non-reviewable and committed to agency discretion,
and may not be reviewed by any court of law or any administrative agency.” There
is no justification for granting one government official the authority to
dispose of $700 billion in taxpayer funds with no accountability. Rather than
justifying a lack of accountability and transparency, the magnitude and urgency
of the crisis and the scale of the proposed government intervention only counsel
in favor of ensuring accountability for decisions made. Indeed, in the most
analogous historical circumstance, the savings and loan crisis, Congress
explicitly established that the Resolution Trust Corporation would be subject to
the Administrative Procedures Act. Similarly, none of the unprecedented, massive
New Deal programs enacted during the Great Depression was immune from judicial
review.
The plan should include the following provisions to improve
decision making and ensure transparency and accountability in the Treasury
Department:
• criteria by which the Treasury Department will decide whether to
purchase assets and make other major decisions under the authority granted;
•
ordinary judicial review under the Administrative Procedures Act;
• quarterly
analyses and reports by the Government Accountability Office on the Treasury
Department’s administration of the plan;
• the provision of an Inspector
General with subpoena power to certify at regular intervals that the Treasury
Department and plan participants are carrying out their responsibilities
properly;
• application of ordinary open-government laws such as the Freedom
of Information Act and the Sunshine Act to any new program or authority;
and
• whistleblower protections for government and private-sector
employees.
3. Taxpayer Protections. It is unacceptable that the Bush
Administration proposes to spend $700 billion to bail out the owners of mortgage
backed securities without requiring any assurance that taxpayer money will be
protected. The plan must include some form of protection for this taxpayer
investment, for example by giving the United States equity in participating
organizations. This too has strong precedent. The United States acquired equity
in bailouts of Chrysler Corporation, the airline industry after the attacks of
September 11, 2001, and in the recent bailout of American International Group.
If the American public must rescue market speculators, then its investment
should be protected with securities warrants strictly related to the amount of
taxpayer risk.
Each participating firm also should be required to appoint an
individual who will be responsible for ensuring compliance with the plan and
will report regularly to the Treasury Department on the firm’s financial
condition.
4. Corporate Accountability and Responsibility. The plan
also must ensure corporate accountability and responsibility. Seven hundred
billion dollars in taxpayer funds should not end up lining the pockets of the
very corporate executives responsible for creating the current crisis. Nor
should taxpayer money be used to lobby the government for more broken policies.
Any plan should include the following:
• strict salary and bonus caps for executives of participating
firms;
• conflict-of-interest protections and fee caps for private firms that
assist the Treasury Department in carrying out the plan; and
• a prohibition
on using bailout funds to hire lobbyists to influence the Congress and banking
regulators.
National crises are precisely the times that demand rigorous
checks and balances between the three branches of our government—not a
short-circuiting of the core principles of our democracy. We encourage you to
exercise Congress’s constitutional role thoroughly, debating and considering
this issue carefully before adopting any plan. We also encourage you not to
simply respond to the current crisis with a bailout plan, but to overhaul
federal regulation of the financial system as soon as possible. To that end, we
urge you to set an expiration date of March 1, 2009, and to provide only partial
funding for any plan, thereby ensuring that the Congress will return to the
issue promptly. We know that you are working diligently on behalf of American
consumers, and we thank you for your efforts.
Sincerely,
Joan Claybrook, President
Public Citizen
David Arkush, Director
Public Citizen’s Congress Watch
division