Dressing our nation’s economic crisis

By U.S. Sen. Susan Collins
(R-Maine)
    Our nation is in the midst of an economic crisis. Top financial experts agree that action by government is critical to prevent further devastating consequences to our economy. The current upheaval in the financial markets already has created great strain on families, small businesses, and community banks throughout the country as well as in our financial markets. And experts agree that the financial meltdown could lead to a deep recession that could cost millions of jobs, ravage the retirement savings of millions of Americans, and injure other innocent bystanders like the endowments of hospitals, universities, and churches. Americans are rightly worried and angry about the impact on their ability to buy a home, borrow to purchase a car, or have a financially secure retirement.
    As a former Maine financial services regulator, I realize that this is a complex problem with plenty of blame to go around. Its roots lie in the greed of Wall Street executives willing to engage in risky schemes for their own economic gain; a decade-long real-estate bubble; relaxed lending standards; insufficient regulation of Freddie Mac and Fannie Mae; naïve consumers who borrowed more money than they could afford to repay; predatory lenders who took advantage of vulnerable consumers; and the creation of complicated securities ties to mortgages that were no longer held by the lenders and brokers who originated them.
    Unfortunately, efforts in years past by both Presidents Clinton and Bush, as well as Congress, to strengthen regulation of financial markets, efforts I supported, were unsuccessful. Greater regulation, particularly of the financial mortgage giants Freddie Mac and Fannie Mae, might have mitigated the crisis.
    Some believe that the economic stabilization bill passed by Congress is of benefit only to Wall Street. But the reality is that the collapse of the housing bubble, with the subprime mortgages and the exotic securities that floated along with it, does not just affect the executive suites on Wall Street. The ramifications cascade throughout our economy. The economic crisis affects the small businesses that need credit lines to meet payroll and carry inventory; the young couple seeking to buy their first home; the automobile dealer trying to finance his inventory, the 55-year-old worker whose 401(k) plan lost a great deal of value; and even our States and counties. The State of Maine recently was unable to finance a routine $50 million transportation bond because of the credit crunch.
    Last week in Washington, the Congress passed bipartisan legislation aimed at averting America’s worsening economic situation. This legislation was necessary and was immediately signed into law.
    I share the anger of many Mainers and my colleagues in the Senate that economic conditions made this legislation necessary. But the reality is that we must prevent further devastating consequences to our economy.
    The legislation approved by Congress represents a significant improvement over the Administration’s earlier proposal, which was deeply flawed. The new law includes the principles for which I pressed—strong protections for taxpayers, curbs on excessive executive compensation, and tough oversight and accountability. It includes the creation of an independent Inspector General to oversee implementation of the stabilization plan, also a provision I advocated. It also ensures that the Secretary of Treasury is not simply given a blank check to deal with this crisis and sets the stage for further regulatory reforms that are essential.
    Under this bipartisan agreement, there are strong protections for taxpayers, so it is very unlikely that taxpayers will ultimately be stuck with a $700 billion tab. In fact, with proper management and oversight—a structure that is created in the bill — taxpayers should be able to recoup the cost of the stabilization plan eventually.
    As a further requirement to strengthen taxpayer protections, the bill requires that after five years, the President report on the gain or loss to taxpayers from this stabilization plan. If there is a net loss, the President must submit a proposal to recover it in full through charges to the financial industry, not taxpayers. If there is a gain, the bill requires that it be applied entirely to reducing the national debt, not to fueling new government spending.
    The new law bill also temporarily raises the deposit-insurance protection for bank and credit-union customers from the current $100,000 per account per institution to $250,000. This is important to reassure consumers about the safety of the banking system in a time of turmoil.
    We have all seen the major headline stories about bank failures, the Government takeover of Freddie Mac and Fannie Mae, the failures of Bear Stearns and Lehman Brothers, and the forced sales of Merrill Lynch and Wachovia. These events may seem detached from the lives of most Americans, but as man.
    American families and workers are being reminded, these events affect their mortgages, home values, car loans, credit-card interest rates, student loans, and the performance of their Individual Retirement Accounts.
    The new law is not perfect, but it reflects a consensus on the shape of an effective intervention, and it contains robust provisions for accountability and taxpayer protection. Once the bill was modified to include oversight, accountability, curbs on executive pay, and taxpayer protection, I supported it because the consequences of inaction would have been catastrophic for Maine and the nation.
    This is an important first step, but more work remains to strengthen federal regulation. It is critical that we continue to work to stabilize our financial markets to prevent further catastrophic consequences for American families and our entire economy.