WASHINGTON,D.C.--U.S.Rep. David Davis, R-1st, of Johnson City, has issued a statement following defeat in Congress of the $700 billion bailout package.
Rep. Davis said, "No one disputes the severity of the issues facing us today. There are alternative solutions which will return stability to the financial markets and protect the taxpayers at the same time."
Davis said, "The problem has never been about whether or not Congress should attempt to address the problem.
"Unfortunately, this measure was hoisted upon us with little or no opportunity to consider alternatives that would reduce the risk to taxpayers and future generations to come.
"The Congress considered a bill that grants $700 billion in spending authority over the next two years to bail out the financial services market -- $350 billion now, and $350 billion more when the president requests it from the Congress.
"Under current budget rules, this spending authority is an outlay that must be financed. This bill addresses that requirement by increasing our national debt limit to $11.3 trillion, an increase of $1.3 trillion.
"Make no mistake about it, this legislation provides a taxpayer financed bailout of those who have acted irresponsibly. It federalizes and socializes another sector of our economy, fundamentally changing yet again the federal government's role in the private economy. And, most importantly, this bill does nothing to address the problems that led to this financial crisis in the first place.
"The plan considered today rewards or bails out investment groups who made poor decisions at the expense of those that acted responsibly. Furthermore, it transfers the burden of these poor decisions onto the honest taxpayers who have made prudent financial decisions, lived within their means, and budgeted responsibly.
"During the past week, I had the opportunity to consult with and listen to a number of experts in the field of economics. Despite the claims by many that the measure considered today is the only alternative to bolster the marketplace, I remain convinced there are a number of steps that could be taken short of a taxpayer financed bailout that would address the current problems facing our economy.
"William M. Isaac, former chairman of the Federal Deposit Insurance Corporation (FDIC), offered a number of alternative suggestions worthy of discussion that included a program utilized during the savings and loan crisis in the 1980s. The plan utilized during that time resolved a $100 billon insolvency at a total cost of less than $2 billon.
"Isaac also points out that the Securities and Exchange Commission could implement new rules today, without the need of legislation from the Congress that would implement fair value accounting, eliminate the practice of 'naked short sells,' and severely limit the practice of short selling altogether.
"With a number of my colleagues, I have co-sponsored alternative legislation that was not allowed to be considered on the floor of the House. Included in that legislation were a number of less costly, more taxpayer-friendly alternatives to address the current crisis:
* "Stabilizing financial markets: Require the Treasury Department to guarantee losses up to 100 percent, resulting from the failure of timely payment and interest from mortgage-backed securities (MBS) originated prior to the date of enactment. Such insurance would provide immediate value to the MBS and a foundation for which they could then be sold.
* "Risk-based premiums: Direct the Treasury Department to assess a premium on outstanding MBS to finance this insurance. Participation in the program would be mandatory for all holders of such MBS in order to guard against adverse selection where only the holders of troubled assets participate. A risk-based premium would be assessed on those with troubled MBS. The premium would expire when the Treasury Secretary determines the fund has sufficient resources to meet any projected losses.
* "Net operating losses: Allow companies to carry-back losses arising in tax years ending in 2007, 2008, or 2009 back 5 years, generating a tax refund and immediate capital. Despite the presence of willing buyers, many firms with MBS are not willing to sell at such a huge loss. Such a carry-back provides a cushion for any such loss, making firms more willing sellers.
* "Repatriation infusion: Allow a repatriation window for profits earned by U.S. firms overseas. Such repatriation amounts would be taxed at 0 percent if invested in distressed debt (as defined by Treasury) for at least one year.
* "Bank losses on GSE stock: Allow banks to treat losses on shares of preferred stock in Fannie Mae and Freddie Mac as ordinary losses, not as capital losses.
* "Two-year suspension of capital gains: Immediately suspend the capital gains rate from 15 percent for individuals and 35 percent for corporations. By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy. After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.
* "Limit federal backing for high-risk loans: Mandate that GSEs no longer securitize any unsound mortgage that is: (1) not fully documented to meet minimum requirements for work, assets, and income; (2) written to comply with any law or regulation that would otherwise violate a firm's lending rules.
* "Schedule the GSEs for privatization: Transition Fannie and Freddie over a reasonable time period to truly private companies without special government privileges and open them up to real market competition. This reform would:
* Establish common sense limits for their capital requirements and portfolio holdings relative to their size;
* Focus their mission on affordable housing only, not profit-making;
* Require them to pay an appropriate risk-based amount for the government guarantee they enjoy;
* Subject them to state and local taxes and accurate SEC filings like every other private for-profit corporation;
* Ultimately provide for the phase-out of their GSE charters once their conservatorship has ended.
* "Suspend "mark to market" accounting: Direct the SEC to suspend the mark-to-market regulatory rules until the agency can issue new guidelines that will allow firms to mark these assets to their true economic value. The current rules contribute to a downward spiral as firms have to evaluate their assets not on the basis of their long-term investment but rather on a short-term mania.
* "Stabilize the dollar: Repeal the Humphrey-Hawkins Full Employment Act which diverts the Federal Reserve's attention from long-term price stability to short-term economic growth. In an effort to fuel the economy, this additional mandate has encouraged the Fed to keep rates artificially low, fueling economic boom and busts, and now a strong up-tick in inflation and the decline of the dollar (as investors free dollars for hard assets). This reform would require the Fed to establish a numerical definition for price stability and maintain a policy that promotes it over the long-term.
* "Executive compensation limits: Require the Treasury to write rules prohibiting excessive compensation or golden parachutes to executives of failed companies at the expense of taxpayers.
* "Strict enforcement of laws designed to protect investors: Task the SEC with reviewing the annual audit reports of entities the federal government has brought under conservatorship or now owns, and determine if those annual audit reports from years 2005 to present accurately reflected the financial health of those businesses.
In conclusion, no one disputes the severity of the issues facing us today. There are alternative solutions which will return stability to the financial markets and protect the taxpayers at the same time.
(Davis is not running for re-election, having been defeated in the Republican primary.)