Bishop’s Aboard on Bailout; Zeldin’s Not
(10/02/2008) Representative Tim Bishop voted on Monday for the $700 billion plan put forward by the Bush administration to help distressed financial firms unload the bad debt on their balance sheets. It has been estimated that the plan would cost each taxpayer anywhere from $7,000 to $10,000.
The plan was promoted as an aid to the stock and credit markets, and its defeat in the House of Representatives, 228 to 205, sent the American and international markets tumbling, although they rebounded somewhat on Tuesday and remained volatile yesterday. The Senate planned to vote on its version of the bill yesterday, and Mr. Bishop said the House would reconvene today to address the issue.
Mr. Bishop was not for the bailout proposal in its first draft, but after a week of negotiations between lawmakers and Treasury Secretary Henry M. Paulson Jr., some compromises on foreclosures, executive pay, and oversight made the bill more palatable to the congressman.
“It’s not a perfect bill by any stretch,” Mr. Bishop said. “No one liked the idea of providing a safety net for pretty terrible and reckless decisions.” However, he said it was also a way to help middle-class families and to help people stay in their homes.
“The foreclosure language is not as strong as I would have liked,” he said, “but it’s still an argument to vote for the bill.”
Mr. Bishop’s opponent in the Congressional race this year, Lee Zeldin, was critical of the plan and Mr. Bishop’s vote for it. He said on Monday that he would like to see more private capital invested and thinks that suspending taxes on business and capital gains temporarily would encourage investment.
Suspending the capital gains tax for two years is part of an alternative solution proposed by the Republican Study Committee, but the alternative does not address business taxes.
Mr. Zeldin said the tax suspension “is going to help have some private capital freed up so corporations would buy up the bad debt” or companies that hold it.
While “corporations are holding onto private capital, the market will go through a bad couple of years,” Mr. Zeldin said. He said that lawmakers need to adjust the rescue plan and its long-term goals so as not to just “bail out Wall Street, but minimize the impact on the economy as a whole.”
Neither the Republican Study Committee, which put forth a similar formal proposal on Friday, nor Mr. Zeldin had figures on how much the tax holiday would cost the federal government, but estimates range from $115 billion to hundreds of billions.
The bill voted on in Congress included several compromises between Democratic and Republican lawmakers. It included provisions for oversight, limits on executive pay, and a phasing in of the money, with presidential and Congressional approval required after an initial infusion of $250 billion. It also called for issuing federally backed insurance for the debt, which would help reduce risk for the companies that hang on to it.
Some of these provisions, however, were left up to the treasury secretary’s discretion. Debt would be sold in a competitive bidding process in which the government would choose from the lowest offers. The government could also negotiate with firms individually as it has done in the past.
Mr. Bishop said calls to his office from district residents were overwhelmingly against the bailout bill before the vote on Monday, but turned to support or uncertainty after the stock market slide.
“Since the vote and the Dow drop, we’ve been receiving calls from people who are very nervous about the economic future. Everybody has money in the stock market in one form or another, whether it’s a 401(k), employer retirement fund, or other investment. The stock market lost $1.2 trillion in value on Monday. That’s a lot of money.”
According to Mr. Bishop, constituents are now seeing what happens when the government doesn’t act in the financial markets. In a less dramatic but more direct form, they might soon see what happens in the credit markets.
“If we don’t pass this the second time around, there is no telling how tight the credit markets will get,” Mr. Bishop said. He noted that the London Interbank Offer Rate, or LIBOR, continues to rise. LIBOR is the rate used to determine adjustable-rate mortgage and credit card interest. Banks are not lending each other money as they would in a healthy market, he said.
“Financial markets need confidence and liquidity. There’s money out there, but institutions are sitting on it because there is no confidence,” Mr. Bishop said. “If the government steps in to buy loans, it will bring money into the market, both federal and private.”
He added that many investors are “parking their money where they know it’s safe, not remotely speculative” such as in treasury bills, which make basically no interest but will keep their money intact.
“It’s an absence of confidence that will hopefully pass” with new votes on the bill, Mr. Bishop said. He agreed with some who said that many members of Congress may have regretted their vote against the bill, thinking the measure had enough support to pass without their vote.
“It was easy to vote no, given the sentiment from the district,” he said, noting that some calls he received since Monday were “to thank me for a courageous vote.”