"Like my colleagues, my phones have been ringing off the hook. The sentiment from Ohioans about this proposal is universally negative."
Chairman Dodd, thank you for calling today’s hearing, and thanks to the witnesses for joining us. They have had many long nights lately, and this may be a long morning.
But I make no apologies for that, and I doubt they seek any. Like my colleagues, my phones have been ringing off the hook. The sentiment from Ohioans about this proposal is universally negative.
I count myself among the Ohioans who are angry. Had the federal government acted to contain the epidemic in subprime lending, I don’t think we would be sitting here today.
The time we spend this morning will be time well spent, not just for our own benefit, but for the benefit of the people we represent. I’m not sure they will be convinced, but they sure deserve a better explanation than they have received to date.
A man from Westerville, Ohio was so concerned he took a day off from work and drove to Washington, D.C. to share his views with me. He quite rightly asked why we are rushing to bail out companies whose leaders got rich by gambling with other people’s money.
Here’s another communication:
“The Federal Government must not prolong necessary corrections in the housing market, bail out lenders, or subsidize irresponsible borrowing and lending, at the expense of hard-working people who have played by the rules.”
Except that statement didn’t come from Ohio. It came from the Office of Management and Budget three months ago.
Throughout this sorry chapter in our nation’s financial history, this Administration has shown extraordinary attention to the problems of Wall Street, while at times showing hostility to rebuilding Main Streets across the country.
The statement I quoted above was from the administration’s veto threat of the housing bill. Congress wanted to include $4 billion to rebuild neighborhoods devastated by the foreclosure crisis. But the administration didn’t want to reward irresponsible borrowing and lending.
Now it does. But before we agree, there are many unanswered questions that Congress and the American people have a right to ask and the Administration needs to answer.
I’d like to know how taxpayers’ money will be spent. How will purchase decisions be made? Will it be an open and objective process like a reverse auction? Or will the price be determined at some higher level decided by Treasury? If so, does that thaw the credit market, or does everybody sit around waiting for Uncle Sam to pay an inflated price?
Will past patterns persist, where Treasury pays attention to Wall Street first and foremost, while the rest of the country watches and withers?
Will community banks, whose equity in Fannie and Freddie was wiped out, be helped? Will banks be able to sell portfolio loans as soon as investment banks offload their mortgage-backed securities? Does this bill do anything to enhance the government’s ability to modify loans and keep people in their homes?
As Chairman Bernanke probably knows, the Bank Panic of 1933 started in Detroit and in two weeks spread to Cleveland. Two of the city’s largest banks were shuttered and never reopened. One had ties to my predecessor in this seat, Republican Marcus Hanna. Rumors flew that the bank’s closure was a political decision. If we don’t know the rules, these types of rumors will be reborn.
Secretary Paulson, as much as I respect your judgment, you will not be making the hundreds of decisions that this effort will require. And as your colleague Secretary Kempthorne has found, a lack of close supervision and adherence to rules can lead to disastrous results.
Many of the people who will be making these decisions have come from Wall Street, and they may be returning to Wall Street. The notion that they can operate without clear guidelines is not just unfair to the taxpayers, I think it is unfair to them.
So I hope this morning we can go into considerably greater detail. And I hope we can give Main Street a good bit more help and attention than we have to date.
It is fine to say that people’s 401(k) accounts may be affected. They will be if we do not act. But for most people, their home is their 401(k). We need to help them as well.