Senator Shelby on the Bailout

I sent an email a while back to Senator Shelby expressing my concerns with the Bailout and thanking him for standing fast against it. He replied with a nice letter and I don’t think he’d mind if I shared it with you. The letter was dated November 3 (any typos are mine):

Thank you for contacting me with your concerns regarding the Emergency Economic Stabilization Act of 2008, which is essentially the financial sector bailout plan devised by U.S. Treasury Secretary Hank Paulson.

I believe that there are significant flaws with this plan that will prevent it from working effectively and will result in unnecessary risks to the taxpayer.  Therefore, I opposed the legislation and would like to take the opportunity to explain my concerns.

First, the process in which this bill was assembled was not as deliberative or thorough as it should have been.  This situation did not appear in a matter of days, and we are not going to fix it with a piece of legislation quickly cobbled together in back rooms of the United States Capitol.  It took nearly 10 years, five Congresses, and three Presidential Administrations for the far smaller Savings and Loan Crisis of the 1980s and 1990s to be resolved.  There are no easy fixes and this crisis will not be resolved quickly.  Deliberation on any potential solutions should not have been done in such a haphazard manner.

Second, the Paulson bailout plan focuses on a single problem — illiquid assets in our financial institutions.  I believe, however, that there are a number of interrelated problems such as the troubled assets on the books of financial institutions and the process of declaring home values that also need to be addressed in order of their significance.  Congress should have undertaken the effort to determine the best course for each of the issues causing problems in our troubled markets.  Instead, we chose to rush through a plan without ever considering any of its details.

Third,  the bill contains a precipitous increase in deposit insurance limits from $100,00 to $250,000.  This would markedly increase the exposure of the already depleted federal deposit insurance fund.  This increase was made with little or no debate and would further amplify the risk to the American taxpayer.  There is also a very problematic track record for rapid increases in deposit insurance, which was one of the factors leading to the Savings and Loan crisis of the 1980s.

Fourth, this law creates the Troubled Asset Relief Program to authorize the Treasury Secretary to purchase up to $700 billion worth of troubled assets from just about any type of institution.  In exercising this authority, the Secretary would be vested with nearly unfettered power.  The oversight, or lack there of, of such power is greatly concerning.  While the bill establishes a Financial Stability Oversight Board to review and make recommendations of the Secretary’s operation of the program, the oversight board is fatally flawed.  The Oversight Board, on which the Secretary himself will serve, along with the Congressional Oversight panel, will not check the Secretary’s authority and will do nothing to address the fundamental flaws within this plan.

Ultimately, my greatest concern is that we have not spent any time determining whether we have chosen the best response to our financial problems.  To the extent that other options exist, I believe that we in Washington have failed the American people in not fully examining these options.  I believe that “choosing something, over nothing,” is a false choice.  This bill does not address the underlying problems with our financial institutions; for that reason I opposed this legislation.

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