Sept. 24, 2008
As Congress Readies to Approve Most Costly Bailout in U.S. History, Lawmakers Must Ensure Taxpayers Are Protected
Statement of Joan Claybrook, President of Public Citizen*
This statement was delivered at a press conference.
Over the past few days, we have witnessed Congress readying to approve possibly the most reckless and certainly the most costly bailout in this country’s history. The speed at which the government is leaping to aid Wall Street titans and their accomplices in the financial services sector is breathtaking. Taxpayers should be alarmed at the unfathomable price tag, which they are being told they must pay and which itself is a guesstimate. They also should balk at the scope of the proposed bailout, which includes not just mortgage instruments but all financial service companies, including foreign companies. Today, Public Citizen and Consumer Watchdog outline provisions that must be in any bailout package – if one is approved. These are designed to protect taxpayers’ wallets, cut off opportunities for corruption and defend against future economic misbehavior.
The provisions that I will address now are designed to ensure that the people who got us into the mess – the Wall Street “wizards” who came up with the obscure and risky financial instruments that government regulators ignored or knew nothing about – don’t further profit from it.
First, in exchange for purchasing companies’ bad debt and “troubled” assets, the government should be given an ownership stake in the firms in proportion to the amount of taxpayer risk. Company warrants should be held and managed by a publicly run office to be known as “America’s Mutual Fund,” which would gain seats on the board of any company receiving a bailout. America’s Mutual Fund’s goal would be to liquidate these assets as companies’ stock values rise enough to compensate taxpayers, with interest, for the bailout.
Second, both federal bailout officials and the banking industry must be subjected to oversight and regulation to prevent another economic debacle. The financial services industry must be subjected to new regulatory standards, such as greater transparency and disclosure requirements, increased regulation of banks, insurers, securities firms and hedge funds, stringent limitations on leveraged investments and offshore financial instruments intended to avoid scrutiny and taxes, and prohibitions against the riskiest investment practices. The program should make bailouts contingent on executives of participating companies accepting strict salary caps and standards for compensation packages.
Further, any company that receives bailout funds or invests in such companies should be prohibited from applying for or receiving a contract to manage any of the government’s newly held assets. This should be obvious, but given the way things work in Washington, it could easily happen. It would an insult to taxpayers for these companies to collect at both ends.
Also, any company receiving bailout money must agree not to lobby Congress for two years. The taxpayers should not be paying for companies seeking specific deals against taxpayers’ interests. Lobbying is partly responsible for how we got into this mess – the financial services, insurance and real estate industries gave $311 million to federal candidates in the 2008 election cycle, split pretty evenly between both parties. The industry has successfully lobbied against regulation, getting rid of key protections in 1999.
Even now, they are still at it – lobbyists have descended on Capitol Hill over the past few days to make sure that any legislation Congress passes protects the interests of the industry, even seeking more deregulation and opposing limits on executive pay at firms that participate in the bailout. This is galling. Congress should worry about consumers – not about the moguls who caused this. For too long, corporate voices have drowned out people’s voices, and we have seen the results: energy policy that benefits utility companies, a drug approval process that benefits pharmaceutical companies and more.
Further, the revolving door between government and industry should be shut for two years. Government regulators who oversee companies that take the bailout money should be prohibited from accepting jobs with those companies for two years, because they are not likely to adequately represent taxpayers’ interests if they are negotiating for their next job with their future employer. And the federal government should not hire workers from the bailed-out companies to oversee their former colleagues for two years. Again, this is a basic and essential principle.
You wouldn’t run a lemonade stand the way the investment banks have run operations on Wall Street. Rather than bending over backwards to help the financiers, Congress should bend over backwards to ensure taxpayers escape with the least amount of harm and get every dollar back.
To elaborate further on these principles is Harvey Rosenfield, founder of Consumer Watchdog.
Finally, we want to urge Congress to do this right, not to do it fast. Lawmakers are itching to leave Washington to campaign in their districts next week. With that in mind, they have set a Friday adjournment date.
But this crisis is far too big, far too critical and far too fraught with unknowns to be addressed hastily. Congress should stay in town as long as necessary and do what they were elected to do, which is to represent the people who are paying their salaries and put measures in place to ensure that this never, ever happens again.