Last month, Congress gave the treasury secretary $700 billion, which he said he urgently needed to buy toxic securities from the balance sheets of some of our largest financial institutions that were in financial trouble.
The secretary said that the economy was in danger, and the bailout funds were necessary to prevent a collapse.
I agree the economy is in trouble. And I am anxious to support emergency measures that will give our economy a lift.
But I voted against the $700 billion dollar fund for the secretary because I insisted that any bailout had to include measures that would stop the reckless behavior that caused this financial wreckage.
Unfortunately, the bailout fund was approved without the tough, new regulations necessary to prevent the actions that steered our economy into the ditch.
In recent weeks, the treasury secretary changed his mind. He decided not to buy toxic securities. Instead, he used the first big chunk of bailout money to buy $125 billion of capital in the nine largest banks. It would free up some lending in the credit markets, he claimed.
But, strangely, he gave the big banks the money “with no strings attached.” He didn’t require them to use it to expand lending. He didn’t stop the payment of big bonuses to their executives. And in a final insult to common sense, his department is encouraging the big banks to consider more mergers.
Weeks later, we learn that the big Wall Street banks plan to pay over $20 billion in executive bonuses to their employees.
What’s wrong with this picture? The American taxpayers, who are struggling through this economic crisis, are told they have to fork over a pile of money to bailout some big banks, while the big banks are busy calculating their year-end bonus payments — maybe to the same geniuses who built this financial house of cards and were last seen driving the getaway car from the scene of the wreckage.
I think it’s nuts!
Should anyone in Washington be surprised that the American people are steamed?
During the past few decades and especially in recent years, the big financial firms were having a field day trading in complicated derivatives, creating a sub-prime loan scandal and engaging in risky, reckless business practices. All the while, many of the government regulatory agencies were doing their imitation of a potted plant.
Finally, the speculation bubble burst, some big financial firms failed, and it is causing major damage throughout our economy.
By contrast, on Main Streets across America, community banks and small businesses were still doing business the old-fashioned way.
A couple of weeks ago, I was sitting across the table from a North Dakota community banker. I asked him if, in light of the financial crisis, his small-town bank had any money to lend if a business from his town wanted to expand.
“Oh, sure,” he said. “We didn’t get involved in all of those fancy, risky business practices that the big banks were involved in. We take in deposits, and we make good loans.”
Good for him. It is the way business is supposed to work.
We do need to take urgent steps to put our economy back on track, but it needs to be smart, effective action that will work. So far, that hasn’t been the case.
When Congress is back in session in mid-November, I am going to push the following changes to the misguided policies of recent weeks:
- Prohibit the payment of big bonuses in the firms that are getting the federal bailout money.
- Attach conditions to any bailout money to make sure the funds are used for the purpose intended and to prohibit the reckless business practices that created this crisis.
- Restrict further mergers by big banks. It was many of the big banks that caused this crisis, while the smaller community banks largely steered clear of the reckless behavior in high finance.
- Immediately create a Federal Investigative Task Force to investigate and establish accountability for this financial crisis. Criminal behavior should be investigated and prosecuted.
Dorgan, a Democrat, represents North Dakota in the U.S. Senate.