Over the past few days, we have witnessed Congress
readying to approve possibly the most reckless and certainly the most
costly bailout in this country’s history. The speed at which the
government is leaping to aid Wall Street titans and their accomplices
in the financial services sector is breathtaking. Taxpayers should be
alarmed at the unfathomable price tag, which they are being told they
must pay and which itself is a guesstimate. They also should balk at
the scope of the proposed bailout, which includes not just mortgage
instruments but all financial service companies, including foreign
companies. Today, Public Citizen and Consumer Watchdog outline
provisions that must be in any bailout package – if one is approved.
These are designed to protect taxpayers’ wallets, cut off opportunities
for corruption and defend against future economic misbehavior.
The provisions that I will address now are designed to
ensure that the people who got us into the mess – the Wall Street
“wizards” who came up with the obscure and risky financial instruments
that government regulators ignored or knew nothing about – don’t
further profit from it.
First, in exchange for purchasing companies’ bad debt
and “troubled” assets, the government should be given an ownership
stake in the firms in proportion to the amount of taxpayer risk.
Company warrants should be held and managed by a publicly run office to
be known as “America’s Mutual Fund,” which would gain seats on the
board of any company receiving a bailout. America’s Mutual Fund’s goal
would be to liquidate these assets as companies’ stock values rise
enough to compensate taxpayers, with interest, for the bailout.
Second, both federal bailout officials and the banking
industry must be subjected to oversight and regulation to prevent
another economic debacle. The financial services industry must be
subjected to new regulatory standards, such as greater transparency and
disclosure requirements, increased regulation of banks, insurers,
securities firms and hedge funds, stringent limitations on leveraged
investments and offshore financial instruments intended to avoid
scrutiny and taxes, and prohibitions against the riskiest investment
practices. The program should make bailouts contingent on executives of
participating companies accepting strict salary caps and standards for
Further, any company that receives bailout funds or
invests in such companies should be prohibited from applying for or
receiving a contract to manage any of the government’s newly held
assets. This should be obvious, but given the way things work in
Washington, it could easily happen. It would an insult to taxpayers for
these companies to collect at both ends.
Also, any company receiving bailout money must agree
not to lobby Congress for two years. The taxpayers should not be paying
for companies seeking specific deals against taxpayers’ interests.
Lobbying is partly responsible for how we got into this mess – the
financial services, insurance and real estate industries gave $311
million to federal candidates in the 2008 election cycle, split pretty
evenly between both parties. The industry has successfully lobbied
against regulation, getting rid of key protections in 1999.
Even now, they are still at it – lobbyists have
descended on Capitol Hill over the past few days to make sure that any
legislation Congress passes protects the interests of the industry,
even seeking more deregulation and opposing limits on executive pay at
firms that participate in the bailout. This is galling. Congress should
worry about consumers – not about the moguls who caused this. For too
long, corporate voices have drowned out people’s voices, and we have
seen the results: energy policy that benefits utility companies, a drug
approval process that benefits pharmaceutical companies and more.
Further, the revolving door between government and
industry should be shut for two years. Government regulators who
oversee companies that take the bailout money should be prohibited from
accepting jobs with those companies for two years, because they are not
likely to adequately represent taxpayers’ interests if they are
negotiating for their next job with their future employer. And the
federal government should not hire workers from the bailed-out
companies to oversee their former colleagues for two years. Again, this
is a basic and essential principle.
You wouldn’t run a lemonade stand the way the
investment banks have run operations on Wall Street. Rather than
bending over backwards to help the financiers, Congress should bend
over backwards to ensure taxpayers escape with the least amount of harm
and get every dollar back.
To elaborate further on these principles is Harvey Rosenfield, founder of Consumer Watchdog.
Finally, we want to urge Congress to do this right, not
to do it fast. Lawmakers are itching to leave Washington to campaign in
their districts next week. With that in mind, they have set a Friday
But this crisis is far too big, far too critical and
far too fraught with unknowns to be addressed hastily. Congress should
stay in town as long as necessary and do what they were elected to do,
which is to represent the people who are paying their salaries and put
measures in place to ensure that this never, ever happens again.