We all must continue to work to ensure that Congress passes a bill containing key components to address the root causes of the crisis and protect America's homeowners.
We still need a bill, but we need the right bill.
Here are some talking points that were prepared by the National Community Reinvestment Coalition:
Highlights of theEmergency Economic Stabilization Act of 2008
America is struggling with the worst financial system crisis since the Great Depression. Immediate action is essential to stabilize the markets and the US economy. Unfortunately, The Emergency Economic Recovery Act of 2008, currently being debated in Congress, will not achieve those goals. The bill directly and meaningfully addresses financial liquidity but fails to seriously address the core problem underlying the current financial crisis: massive home foreclosures. The bill does not mandate foreclosure prevention, and as a result leaves open the prospects for further significant economic disruptions and future emergency federal bailouts. The bill also inadequately protects taxpayer investments in the financial system bailout.
The following points describe the ways in which the bill falls short of resolving the current crisis or even meeting appropriate oversight standards it purports to achieve.
No meaningful loan modification mandate
Federal agencies are required only to encourage, but not to mandate modifications of loans purchased by the federal government. The bill lacks a mechanism to systematically modify loans held in securitized pools. The bill does not provide guidance as to what loan modifications may be reasonable and desirable. The bill does not address accounting rules or the tax implications that might accompany loan modifications. The bill does not address challenges presented with second mortgages.
Uncertain valuation approach by Treasury Department
Treasury is given the latitude to determine the final purchase price of problem assets from financial institutions. No current valuation exists to determine the price of these problem assets. If assets are purchased at full value as opposed to current market value, meaningful modifications will not be possible without unnecessarily incurring significant taxpayer subsidies. No Congressional oversight is required to modify the Treasury Department’s approach to purchase failed assets.
No restrictions on financial assets purchased
According to the Congressional Budget Office, “the Secretary [of the Treasury] would have the authority, if deemed necessary to promote stability in the financial markets-to purchase any financial asset at any price and to sell that asset for any price at any future date. That lack of specificity…makes it impossible at this point to provide a meaningful estimate of the ultimate impact on the federal budget from enacting this legislation.”
No explicit loss protections for taxpayers
Treasury is to receive equity in the form of non-voting stock or senior debt from companies that participate in the program. The bill does not define what an appropriate equity stake may be, how it would be structured or how it would work. If losses to taxpayers occur, the legislation requires Treasury to design a method to recapture those losses after five years. How, or whether, this measure will be enforced in five years remains uncertain.
No limits on executive compensation
The bill does not limit executive compensation. An institution that sells more than $300 million in assets to the Treasury would be subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000. This means that an executive, for example who receives a $25 million golden parachute with a 20% excise tax would walk away with a $20 million bonus—paid for by the American taxpayer.
No anti-predatory lending provisions
The bill does not contain any provisions that purge unfair and deceptive lending practices from the mortgage market, leaving the door open to a future foreclosure crisis.
No bankruptcy help for homeowners; $700 billion for banks
The bill provides $700 billion in taxpayer money to fund bankruptcy avoidance for financial institutions. It fails to include a provision to protect homeowners that would cost the federal government not one cent. Current bankruptcy law prevents homeowners in financial trouble from pursuing loan modifications and resuming loan payments as part of bank restructuring. In contrast, wealthy consumers can seek modifications of loans for their second homes, investment properties, family yachts and other non-essential items.
The vote presents an opportunity to continue to impact on the content of the legislation and ensure that a stronger bill moves forward.
Tell Congress it's time to get it right. Click below to Write your Congressional Representative now:
http://salsa.democracyinaction.org/o/2249/t/7989/campaign.jsp?campaign_KEY=25965
In addition to the advocacy points list above check out this story in the San Diego Union-Tribune that describes all the add-ons and earmarks that have nothing to do with the current crisis.
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