October 10, 2008

Bailout: Not pretty, not popular, says Walden

By RODGER NICHOLS
of The Chronicle

     Congressman Greg Walden shared his inside view on recent economic events, including the bailout bill, during a visit to The Dalles Monday.
     “This was neither perfect nor pretty, and certainly not popular,” Walden said.
     “It’s probably the most unpopular vote any of us has cast that voted for it,” he said.
     But, he said, he was convinced it was necessary.
     “When you have people like the chairman of the Federal Reserve saying not since World War II has the country faced this serious an economic problem, and you see the whole shutdown of the credit market, you realize there’s an economic tsunami that starts on Wall Street but is quickly racing toward Main Street. Our job is to try and prevent that from happening.
     Walden, who voted in favor of the bailout before a number of “sweeteners” were added to entice votes, cited one of the events that convinced him quick action was needed.
     “One of those money market funds on the East Coast broke the buck, which means it couldn’t return dollar for dollar what people had in it,” he said. “The next day, I’m told, there were seven other fund managers that contacted the Department of the Treasury and said they were about to do the same thing.      Because Americans saw that occur and withdrew $89.3 billion in one day from money market funds.”
     The Federal Reserve stepped in at that point and added $50 billion to the system, Walden said.
     He also said there were signals coming in from businesses that couldn’t get interim financing or credit lines, and students who couldn’t get student loans.
     “Some of that credit tightening needed to occur,” he said. “Part of what got us into this mess was too loose credit and predatory tactics.”
     But, he added, it was important to act quickly to prevent longterm serious damage.
     “These leaks are coming out of our economic financial dam that we keep putting our finger in,” he said. “Hopefully we can keep it from breaking loose, because if it breaks loose, it’s tens of trillions of dollars.”
     Walden said the long complex bailout bill that ultimately passed the House contained a number of accountability safeguards that haven’t been talked about much in the national media.
     “First,” he said, “If a business participates in this rescue plan, the assets [loans] are bought by the Treasury, which means the business gives them up.
     “Because it’s a reverse auction, it will be pennies on the dollar to the business. Government’s the only one big enough to buy it and hold it, then sell it once the market begins to recover.
     “When it does sell, taxpayers and not the business, will be the ones making a profit, if there’s any profit to be made out of this.”
     There are also some limits on executive compensation, Walden said, for companies that take advantage of the bailout.
     “To get rid of the golden parachute, any remuneration over $500,000 a year for the top five executives would not be allowed to be deducted as a business expense.”
     Walden noted that a half million dollars a year is big money for most of us, but is small for executives in those businesses, citing the president of WaMu, who made $7.2 million a year. Loss of deductibility on large salaries would be a strong incentive to boards to keep executive salaries down.
     “That’s never been done before,” he said.
     Walden said the legislation includes a matrix of reports from Treasury to the Congress on a very strict timeline.
     “We put as much oversight in there for the taxpayer as possible,” he said.
     Walden noted that government bailed out Chrysler in the 1980s by loaning the company money, the taxpayers actually made a profit on that loan.
     He compared that to the recent intervention on behalf of insurance giant AIG.
     “It’s an 11.5 percent loan for two years, and taxpayers now own 79.9 percent of AIG,” he said. “In order to be saved, they had to give up 79.9 percent of the company.”
     Taxpayers earned healthy above-market interest rates on the del, Walden said, and at some time in the future could sell the government’s stake back into the market.
     “I certainly didn’t go back there with the notion of nationalizing and socializing companies,” said Walden, who is a staunch Republican. “It’s the last thing I want to do. And yet, we realize we’re at the last thing.
     “People are really angry, and they’re angry at Wall Street. Our job is to try and not let that anger run over the top of the preventive medicine to keep it from hitting Main Street.”