Wednesday, November 26, 2008
Joe Donnelly, Member of Congress
November 26, 2008
Dear Mr. hoosiertoo,
Thank you for taking the time to contact me about the ongoing financial crisis. I value your views, and your input helps me to better represent the people of Indiana's Second District in Congress.
As your congressman, I believe it is my duty to do whatever I can to protect jobs, retirement savings, and economic growth in our communities. The financial crisis threatens them all. I am angry that Main Street was asked to step up and fix a mess that was caused by the greed and recklessness of Wall Street. The FBI is already investigating many firms for possible wrong doing, and I hope anyone who acted illegally lands in jail. However, I believe that the cost of inaction would have been much greater than the cost of the rescue package, and I could not stand idly by as your representative and do nothing as the crisis worsened. On October 3, I joined colleagues from both parties in the House of Representatives in passing H.R. 1424, The Emergency Economic Stabilization Act, by a vote of 263 to 171. The bill was signed into law that same day.
One of the primary causes of these problems is that mortgage companies and lenders began several years ago to significantly expand the number of home loans they provided to Americans with questionable credit histories. Homeownership soared as
the number of "subprime" home loans increased. Many banks, investment firms, and other financial institutions got in on the housing boom by offering and trading incredibly complex "mortgage-backed securities" and other products whose values were, in theory, based on the value of the mortgages held by lenders. These were bought, repackaged and traded by an increasing number of financial companies, leaving many banks and firms exposed to huge unknown risks in their pursuit of bigger profits.
When the housing market crashed, so did the value of these complicated assets, and the result has been the worst economic crisis America has seen in several decades. In mid-September, lending activity began to freeze up. Reacting to the failures of major investment firms and fears that others were on the brink, banks slowed, or, in some cases, even stopped, their lending. These banks either did not have enough capital on hand to continue their standard lending practices or decided they were unwilling to assume the risk of possibly not being paid back.
Our economy depends on the availability of credit, and action was necessary to get the credit market to thaw. H.R. 1424 authorized the Treasury to use up to $700 billion to purchase shares of banks or buy existing mortgage-backed and other troubled securities over the next two years in an effort to ease the flow of credit and restore confidence in our financial system. The government would hold these assets temporarily, selling them back in a few years and earning most of the value back. The bill includes strong oversight mechanisms, prohibits any executive of a participating company from getting a golden parachute, and temporarily raises from $100,000 to $250,000 the amount per depositor the federal government will insure.
Much work remains to shore up our economy, protect retirement savings, and ensure that hard-working Americans can feel secure in their ability to provide for their families' needs and plan for the future. I promise to do everything within my power to ensure that smart regulation and oversight of our financial system is restored so that this kind of disaster never happens again, and as Congress considers future action to help the economy, I will always put the interests of Hoosiers first.
Thank you again for contacting me about this important issue. Please do not hesitate to write, call or email me again if I can ever be of assistance. Also, if you would like to receive regular updates on my actions on your behalf in Congress, sign up for my e-newsletter, The Donnelly Dispatch, at http://donnelly.house.gov.
Member of Congress
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