You are one of many people who called, wrote, or e-mailed my office with questions or opinions about the Emergency Economic Stabilization Act of 2008. As you probably know, the bill was passed by both houses of Congress, signed by the president, and is now law. The vote in the Senate was 74-25 and included yes votes from a wide range of the political spectrum including both Senators Obama and McCain, both California Senators, and the most conservative member of the Senate, Tom Coburn (R-OK). It then passed the House by a vote of 263-171 which included yes votes from The Speaker, Majority Leader and Minority Leader.
As you may also know, I voted in favor of the bill and was a strong advocate of it. I hope you will take the time to read on so I can explain why I feel so strongly about this legislation.
First of all, if you are personally opposed to the bill it is probably because you are against a $700 billion bail out of Wall Street. You should be against that. I am too. But that media term for the bill is a complete mischaracterization of what the bill does. It will not cost $700 billion and it is not a bail out of anyone. Let me explain:
$700 Billion: This amount will not be spent. It is being invested in hard assets (mortgages secured by homes) which will have an expected cash flow in excess of the purchase price. So the taxpayers should get all their money back that way. But if that doesn't work, taxpayers will also get warrants (stock options) in the companies from which these assets are purchased. So, if those companies recover, taxpayers get part of profits. And if both of those don't get the whole $700 billion back, whoever is president in 5 years is required to submit to Congress a proposal to get any loss back from the companies who sold the government the assets. That's 3 different ways to be sure the taxpayer is made whole and maybe makes a profit. This bill may wind up costing less than one year's worth of earmarks.
Bail Out: The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it, would I be bailing you out? I don't think you would look at it that way. These companies will lose lots of money. Fine. They made an investment that went bad and they have to live with it. But they will not be bailed out. Many companies and a number of banks will still fail even with this bill. The purpose of the purchase is to cut out the cancer that is clogging the world's financial arteries so that credit and loans and cash can flow again. No one is being bailed out.
Wall Street: If we do nothing, expect to see many days on the stock market like Monday, September 29th when the stock market suffered its biggest one day point drop ever. That will devastate the retirement plans of millions of everyday people. All forms of credit have already dried up. If they dry up more, companies small and large will not be able to get standard short term loans to buy inventory and make payroll. That means lots of job losses and layoffs. And people with money market funds and bank accounts may not be able to get their money, even with FDIC Insurance because these entities have to sell a loan to get you cash. And no one is buying the loans.
Many different proposals were looked at and discussed. I was actually part of a working group appointed by the Republican Leader to develop an alternative plan, which, in fact, developed several provisions that were included in the final bill. Our goal was to develop a virtually cost-free plan to stabilize the global financial markets and save every American's savings and investments, not a bail out. I believe that the final bill meets these criteria. There is no guarantee that this bill will work. But I have not seen an alternate plan that I thought had a better chance to both work and pass both houses of Congress.
If the bill works, some banks will still fail and some companies will still not make it. But it will be far, far fewer than would have otherwise occurred. Some of you have asked me why a believer in free markets would support this bill. I have done so because I believe this is a solution to preserve free markets, not replace them. In some ways, this bill is more of a free market solution than other actions that have been taken. The government will not take over any companies here. Even the warrants will be non-voting. No one will be compelled to sell the government their assets if they don't want to. Even the "reverse auction" process of establishing pricing for the assets, where sellers submit bids to one buyer rather than the other way around, is a market based pricing method.
No one wanted this bill. No one wished for this crisis to occur. But it is here. This is a worldwide problem and not just an American one. And we had to act. My vote was carefully considered, but made without reservation. I applaud my colleagues, both Republican and Democrat, who joined me in doing so.
I appreciate the great honor you have given me by allowing me to represent you in the United States Congress.
I remain respectfully,
JOHN CAMPBELL
Member of Congress
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