Bill Nelson, U.S. Senator from Florida: Statement: U.S. Sen. Bill Nelson on the bailout vote

Mr. NELSON of Florida. Madam President, the things that have been added to this bill such as the FDIC provisions as well as the energy tax extenders and other tax extenders that I have already voted in favor of, certainly I support them, but the underlying bill rewards the banks and leaves the little person with the short end of the stick, and that is not right. This plan rewards the investment banks that ran us into the ground and it hardly does anything to help the homeowners who are facing foreclosure.

If, under this bill, the financial institutions participate in the Treasury's program, they should accept reasonable limits on executive compensation, but under the bill they don't. The limits on executive compensation are left to the Treasury Secretary's discretion. Some CEOs who caused this crisis in the first place will benefit from this bailout and will also walk away with golden parachutes. That is not right. This creates a moral hazard the U.S. Government will undertake.

This bill sends a message to Wall Street that if they play fast and loose in the name of short-term profits, the Government will actually make up for their losses. And the bill does very little to help individual homeowners. Until we stabilize the housing market, which is the underlying ability to restructure the economy from this crisis--until we stabilize the housing market, and until we stem the record number of foreclosures, our market simply is not going to improve. While this bill authorizes the Treasury to develop and carry out a plan, it does not require financial institutions participating in the program to modify or refinance any loan. It only requires the Treasury to encourage loan modifications. Voluntary refinancing efforts will not solve our foreclosure crisis. We should mandate these efforts. We should start by requiring Fannie and Freddie to refinance the mortgages they hold on their books.

Furthermore, I think this bill should do more to investigate the business practices of major credit rating agencies. They fostered the enormous growth of the mortgage-backed securities. They gave securities, mainly consisting of subprime mortgages, the gold standard or the triple A rating. That rating gave investors the confidence that they were making safe investments. Without that triple A rating, insurance companies and pension funds and other investors would not have bought those products.

So I am calling for an investigation to probe the business practices of those agencies. Investors relied on and trusted those credit ratings, and the public deserves to know how these rating agencies concluded that such risky investments could receive such high credit ratings.

I could say a lot about this, but let me just say that the bottom line is, ultimately, this bill forces taxpayers to bail out investment banks that caused the crisis in the first place, and it does nothing to address the real problem, which is home foreclosures and a resuscitation of the housing market. Until we stop the record level of foreclosures, this crisis is going to continue to worsen, whether we pass this bill or not.

For these reasons, I oppose this bill. I think Congress can do better, and I think Congress can come up with a better, more targeted solution to this complex crisis.

It saddens me that I would oppose so many of my colleagues who have offered very cogent reasons. It is true we have to do something, but this particular legislation is not the right solution.

I yield the floor.

Following is the text of Sen. Nelson’s letter to Sen. Dodd:

The Honorable Christopher J. Dodd
Chairman
Senate Committee on Banking, Housing, and Urban Affairs
534 Dirksen Senate Office Building
Washington, D.C. 20510

I fully understand and appreciate the gravity of your responsibility as chief author of legislation that will hopefully stabilize our financial markets. I share your desire to make sure that any relief we provide will protect taxpayers and does not reward those who profited while pushing us toward this crisis.

Accordingly, I strongly believe that any legislation authorizing the Treasury Department to purchase mortgage-related assets must contain the following provisions:

1. Initiate a special investigative unit within the FBI to probe the business practices of major ratings agencies. While many stakeholders share the blame for today's financial crisis, bond rating agencies helped facilitate the enormous growth of the mortgage-backed securities industry, and gave securities consisting of subprime-related mortgages "AAA" ratings. Investors relied on these credit ratings to make purchases. The public deserves to know how these rating agencies concluded that such risky investments could receive such high credit ratings.

2. Do not allow foreign-owned financial institutions to participate in the Treasury's purchase of mortgage-related assets. While I understand that we face a potentially global crisis, I cannot support a bill that forces American taxpayers to bailout foreign-owned financial institutions.

3. Authorize the Treasury to purchase only mortgage-related assets, not other troubled assets. The current crisis resulted from a massive housing bubble that ended with millions of homeowners defaulting on their mortgages. I cannot support a bill that expands relief to include other troubled assets that had little to do with causing this crisis.

4. Require the Treasury to pay fair market value for any mortgage-related assets. I cannot support a bill that overpays banks for troubled assets, giving financial institutions and Wall Street bankers a taxpayer-funded windfall. We should inject necessary liquidity into the market, but we should not reward those responsible for our current circumstances.

5. Instruct the Treasury to require an equity interest or option, e.g. warrants, from any financial institution that chooses to participate in the program. In the case of the AIG bailout, the government required warrants in exchange for assistance. If we are going to buy bad debts from banks, helping them to avert bankruptcy, then the taxpayers must share in any potential rewards.

6. Establish multi-tiered and independent oversight of all government purchases of mortgage-backed securities. I strongly support your vision for oversight by an internal board at Treasury that includes congressional appointees, an independent inspector general, and the relevant committees of Congress.

7. Create and fund more efficient government-sponsored refinancing mechanisms for homeowners facing foreclosure. Financial institutions seeking to participate in the program should be required to refinance or modify any mortgages they or related companies hold for homeowners
in danger of foreclosure. Consider using Fannie Mae and Freddie Mac to refinance mortgages. If we are going to bailout Wall Street executives, we should provide real foreclosure relief to ordinary families. I cannot support a bill that fails to do so.

8. Authorize funds based on performance. Provide $250 billion initially but set targets for success that, if met, trigger authorization of additional funds. We must be good stewards of taxpayer money, and I cannot support a bill that provides a blank check that is not based on performance.

9. Develop clear and strong regulations for other securitized debt obligations, such as securitized credit card and auto loan debt. As we commit massive amounts of taxpayer money to resolve
one crisis, we cannot allow another to brew.

10. Develop a second economic stimulus package that focuses on long-term investments, and make adoption of that stimulus package a condition for passage. This package should be focused on investment in infrastructure to help create jobs and spur local economies.

11. Set reasonable limits on compensation--including incentives and severance pay--for executives of financial institutions that seek to sell mortgage-related assets through the Treasury's program. Taxpayers should fund neither golden parachutes nor large bonuses for individuals whose behavior precipitated this crisis.If financial institutions wish to participate in the Treasury's program, they must accept reasonable limits on executive compensation.

I know that these uncertain times place us all under significant pressure to act, but I want to make sure that we act sensibly. We absolutely cannot put a quick solution ahead of the right solution.

I appreciate your consideration of these crucial issues. As we move forward, I stand ready to offer any assistance that you may need.

Bill Nelson
U.S. Senator

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