A Letter to Senators Allard and Salazar and Congresssman Tancredo on the financial crisis

I am writing to express my concerns about Secretary Paulson’s proposed bailout of financial institutions While we clearly need to lower the levels of volatility and stabilize the credit markets, the bill fails certain common sense tests in current form.

1. The bill provides a blank check with a floor of Government investment of $750 Billion. There are no limitations on the risk the Treasury Department will take on for the nation. There are no consequences for those who took on such risk and, effectively, ran our financial system into the ground. While I recognize they can not be punished ex post facto, we can limit the rewards they make. In short, we need to make sure the so called “moral hazard” is enforced. In short, the bill should impose reasonable restrictions on the amount of risk shouldered by taxpayers and prevent executives from reaping unreasonable profits (e.g. from severance packages) should they accept a taxpayer bailout.
2. The bill gives unfettered power to the Treasury Department. Section 8 states “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” I consider Secretary Paulson a good and honorable man, but we all make mistakes and abuse our discretion. The reasonable restrictions mentioned here should be reviewable by Congress under its Constitutional Spending powers.
3. The bill does not get to the root cause of the problem. This, by itself, is not a reason to vote against the bill, however, I would be remiss in not insisting for a separate measure to assist homeowners in danger of loosing their homes. The root cause of this problem is the current credit crisis in housing. By stabilizing the housing market and the ability of homeowners to afford their homes, we would stabilize financial instruments that rely on those mortgages for their value (e.g. Credit Default Swaps and Collateralized Debt Obligations)
4. A separate root cause of this problem was the inability of any regulatory agency to enforce rules concerning the risks taken on by these companies or the rating systems those companies relied upon for taking on that risk. Often Collateralized Debt Obligations were rated as investment grade securities by ratings services with severe conflicts of interest. There was no ability for the Federal Reserve, the Treasury Department or the Securities and Exchange Commission to limit the risk these companies took on, even though these risks ultimately fell on we, the taxpayers. These regulatory loop holes must be closed.

Thank you for your time and attention.