In our ongoing effort to provide our clients and friends of the firm with updated information and insight on developments related to legislation to support the financial markets, the Foley & Lardner LLP Financial Crisis Response Team is pleased to provide the following summary of today's events in Washington.
President Bush Addresses the Financial System Crisis in White House Speech
In a ten-minute address to the nation on Wednesday night, President Bush tackled the concerns and confusion of the American people about the necessity of his $700 billion bailout plan. Members of Congress had been hearing almost exclusively negative comments from their constituents about the Administration's plan, and Congressional leaders insisted that the President take ownership of his plan and speak to the nation about why ordinary taxpayers should support the plan.
The President sought to explain the nation's "serious financial crisis" by giving a primer on how the ready availability of foreign capital and low interest rates spurred increased lending and a building boom. He explained the dual problems of loans made to people who could not afford to maintain them and the packaging and resale of mortgage backed securities, often to investors who did not ask questions about the true value of the loans. President Bush connected the Wall Street bailout with Main Street realities by invoking the specter of difficulties in securing car loans, student loans, or small business loans. He warned that millions could be thrown out of work if Congress did not act swiftly.
President Bush outlined broad principles he hopes to see in whatever bill Congress passes: it would be big enough to restore confidence on Wall Street, remove the risks associated with mortgage-backed securities, and spur banks to lend again, be available to large and small banks alike, and limit windfalls for bank executives.
The President said he had invited presidential candidates Senators Barack Obama (D-IL) and John McCain (R-AZ) to the White House Thursday, along with Congressional leaders, to secure a bipartisan plan on the rescue package. News reports late Wednesday indicated that Democratic Congressional leaders have reached a basic agreement on the scope of a plan. House Financial Services Chairman Rep. Barney Frank (D-MA) told reporters that an agreement had been reached and there would be enough votes to pass it and send it to the President to sign into law. "We now have between House and Senate Democrats an agreement on what we think should be in the bill, and we have a meeting scheduled at 10 a.m. tomorrow to meet with the Republicans," said Rep. Frank. Many Republicans, while acknowledging the President made a good case are still indicating changes to the proposal need to be made to get their support. The addition of both Presidential candidates to the summit and the bipartisan joint statement of Speaker Nancy Pelosi and Minority Leader John Boehner have certainly increased the chances that a negotiated bipartisan solution will be reached by this weekend. It is unclear whether legislation will be introduced in both bodies before or after the summit today and whether the legislation will be identical.
The full text of the President's speech can be found here.
Reactions to the President's speech were mixed.
"The American people are facing a moment of economic crisis. No matter how this began, we all have a responsibility to work through it and restore confidence in our economy. The jobs, savings, and prosperity of the American people are at stake.
"Now is a time to come together - Democrats and Republicans - in a spirit of cooperation for the sake of the American people. The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.
"This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. Now is our chance to come together to prove that Washington is once again capable of leading this country."
- Joint statement of Senators John McCain (R-AZ) and Barack Obama (D-IL)
In a separate statement, Sen. Obama outlined five principles he said were necessary for the proposal including creating an economic plan that helps "millions of families facing foreclosure" and not just Wall Street, creating "an independent, bipartisan board to ensure accountability and complete transparency" and protecting taxpayers by creating a economic plan that did not include earmarks. "This plan cannot be a welfare program for CEOs whose greed and irresponsibility has contributed to this crisis," Obama's statement said.
"We continue to work closely with Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and with Democratic and Republican Members of the House and Senate to improve the Bush Administration's initial proposal to stabilize the financial markets. Our shared goal is to make the proposal more accountable to taxpayers.
"Working in a bipartisan manner, we have made progress. We agree that key changes should be made to the Administration's initial proposal. It must include basic good-government principles, including rigorous and independent oversight, strong executive compensation standards, and protections for taxpayers.
"We are committed to continuing to work cooperatively and on a bipartisan basis to safeguard the interests of American taxpayers."
- Joint Statement of House Speaker Nancy Pelosi (D-CA) and Minority Leader John Boehner (R-OH)
"Our financial markets are in turmoil and the Administration was right to call for decisive action to prevent further harm to our economy. "But nationalizing every bad mortgage in America is not the answer. This Administration's request of this Congress amounts to the largest corporate bailout in American history. "I believe Congress should act, but we should act in a way that protects the integrity of our free market and protects the American taxpayer from more debt and higher taxes. We need to put the interests of taxpayers first."
- Rep. Mike Pence (R-IN)
"At this point, Congress is being asked to support an uncertain entity, costing an uncertain amount of dollars, for an uncertain duration - a decision that will have implications for generations to come and requires absolute certainty. We are being asked to go 'all in' with taxpayer dollars, and once our government and the taxpayer is on the hook, there is no fallback option. My fear is that taxpayers will be left with the mother of all debts, the federal government becomes the lender and guarantor of last resort and our nation finds itself on the slippery slope to socialism."
- Rep. Jeb Hensarling (R-TX) Head of Republican Study Committee
"We've come to this point after eight years of President Bush waging a war on fiscal responsibility. His Republican philosophy of removing all accountability from big business - and expecting no responsibility from them in return - has created this crisis that now threatens to devastate America's working families.
"It is time for him to explain how eight years of deregulation policies have brought us to this dangerous ground.
"And most importantly, it is time for him to explain how his plan - drafted literally under cover of darkness - will help America weather this storm."
- Senate Majority Leader Harry Reid (D-NV)
"There's politically a lot of pessimism because the American people are pushing back. There's a realization that we have to do something, and that we can't leave town until we do."
- Rep. Spencer Bachus (R-AL) House Financial Services Committee Ranking Republican