Friday, October 3, 2008


We have all heard about this Wall Street bailout and NO POLITICIAN in this country today will go on record as a big supporter of it. Nobody likes this bill. They didn't like the initial plan proposed by Hank Paulsen, they did not like the first or second versions of this bill and they don't like the current version, either.

Personally, I believe that the most current version of the bill is the WORST and I hope Congress will fail to pass it AGAIN.

The reason that I say that is because we keep hearing this false choice that we either hold our noses and pass this one or do nothing. But those are not the only two choices that we have. There are other proposals out there, but you are not hearing about them. Now you are.

Below, I am posting a bill in the works from Pete DeFazio and several others are co-sponsoring. It is not a bailout, but it provides for the liquidity that the market is saying they currently lack.

The most immediate crisis that this economy faces is the lack of liquidity in lending. Banks are not lending money to other banks and businesses are facing the possiblity of not being able to get capital loans to make payroll and pay their vendors. This is what could break our whole economy. The answer is not to pay Wall Street but to ensure that banks will regain their ability to continue the inter-bank loans that enable businesses to run. DeFazio's bill addresses this need and some other important issues, without handing Wall Street a blank check.

I ask you to read this proposal and click on the title of this blog to read an article about this bill. Then please pass this on to your friends. We all need to get behind this sort of RESPONSIBLE legislation and make sure Congress does the right thing to fix the problem. Call your Congressperson and him/her to support a Responsible Solution to the current crisis.

Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security

1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.

This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.

2) Require the Securities and Exchange Commission to restricting naked short sells permanently.

This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.

3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.

This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies “to protect the integrity and quality of the securities market and strengthen investor confidence.” This rule prevents market crashes brought on by irrational short term market behavior.

4) “Net Worth Certificate Program”

This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.

Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.

In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.

5) Increase the FDIC Insurance limit from $100,000 to $250,000.

The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.

Peter DeFazio - Member of Congress

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