Commentary - Why I voted against both bailout billsThe bill was not the right solution for the problems I see on Wall Street.
By: Collin Peterson, U.S. Representative, 7th District, Detroit Lakes, MN, Alexandria Echo Press
The first time I voted no on this bill I said that the $700 billion bailout for Wall Street was a huge amount of taxpayer money to spend on a plan that took the wrong approach and was very unlikely to solve the actual problem.
On Monday it was called the Wall Street bailout and on Friday they called it the Emergency Economic Stabilization Act, but no matter what it was called, the bill was still not the right solution for the problems I see on Wall Street and so I voted no for a second time.
However, this second time the bill, H.R. 1424, passed the House by a vote of 263 to 171.
As I reflect on this I don’t see how anyone could think that taking a bill that already was weak in a lot of places and will expose taxpayers to $700 billion more dollars in debt can be improved by adding on another $150 billion. And all of this spending is “unpaid for” – it will be added directly to the national debt. In effect we’re mortgaging the future (something that should belong to our children and grand children) and turning to China and other foreign nations to finance it. We could be putting ourselves and our children in a position where we no longer have effective control over our own country’s financial system. They could be in a position to buy our country’s best assets and we won’t have a lot of options for preventing it.
Keep in mind that the national debt has grown by more than $4 trillion during the Bush presidency. It’s increased by almost 75 percent to nearly $10 trillion dollars. The bailout bill will probably add billions more, though the president and others say lots of it “will be paid back.” I certainly hope so, but I’m not optimistic about it.
Also buried in the bailout bill was a provision to raise the national debt ceiling to $11.315 trillion, and it was only two months ago that President Bush signed legislation raising it to $10.615 trillion. Keep in mind that the interest alone on the debt in fiscal 2008 totaled $431 billion, about $1,400 for every man, woman and child in America.
Now that the president has signed this massive new spending bill into law the Secretary of the Treasury will be able to begin buying any kind of “bad debt” he thinks should be removed from the books of a variety of private sector firms. His power to make these decisions is virtually unrestrained and there’s no doubt in my mind that one of the things he’s going to buy on behalf of you and me is something called a credit default swaps contract.
We have a roughly $60 trillion dollar exposure in the market where they trade these credit default swaps, which most people don’t know anything about. I can tell you this bill does absolutely nothing to protect any of the $700 billion in taxpayer money this bill will allow to be spent from that kind of bad debt.
You might wonder what a credit default swaps contract is – I certainly did the first time I heard the term. Credit default swaps enable lenders (banks and other financial entities) to a company to purchase what amounts to insurance that will protect them if the company defaults on its debts. The number of these contracts in the system has grown at an astonishing rate in recent years and the nominal amount of debt guaranteed by them has risen from a bit more than $600 billion in 2001 to around $60 trillion this year. That’s an increase of a 1,000 percent in only seven years.
Speculators who think a financial firm such as AIG will fail can buy a credit-default swaps contract and they will profit if they are right. And because markets can sometimes behave like a heard of cattle, an increase in the price of a credit default swaps contract outstanding against a particular firm may scare other investors and actually drive down the company’s stock, even though the company’s books are strong.
As we have already seen with the sudden collapse of the insurance firm AIG, there is real reason to be concerned. The collapse of another major firm in the credit default swaps market could set off a chain of problems that would cascade through our economy.
In my opinion these credit default swaps contracts could be the most dangerous things floating around in our financial system and the way things are set up right now nobody can tell for sure what those swaps traders are up to. We need our regulators to be able to see what’s going on there. We need a revised system – something along the lines of what we do in the commodities markets – to provide transparency and accountability for both buyers and sellers. The bill that I opposed today doesn’t do any of that.