As the Administration presses for a $700 billion package to address the crisis in our nation’s financial markets, Senator Susan Collins is calling for specific plans about how the legislation would protect taxpayer dollars. Senator Collins has also expressed concern that Congress has not yet had the opportunity to hold in-depth hearings to examine the ramifications of such a plan.
Senator Collins’ letter to U.S. Treasury Secretary Henry Paulson is as follows:
September 22, 2008
The Honorable Henry Paulson
Secretary, Department of the Treasury
Washington, DC
Dear Mr. Secretary:
As Congress begins consideration of the $700 billion package that the Administration has proposed to address the growing crisis in our nation’s financial markets, I have numerous concerns about the impact on taxpayers, Main Street, and those institutions and executives who made high-risk decisions that have created or exacerbated the crisis. I am writing to ask what specific safeguards the plan would include to protect taxpayers if the Administration were to be granted the expansive authority to buy troubled mortgage-related assets as you have proposed.
Based on last Friday's conference call, I understand that you and Federal Reserve Chairman Bernanke believe that strong measures are needed to prevent the credit lock-up from degenerating into economic chaos here and turmoil abroad. While I support efforts to stabilize our capital markets, the Administration's plan could put hundreds of billions of taxpayer dollars at risk. And Congress has yet to hold in-depth hearings to explore the ramifications of the proposal.
While exchanging Treasury funds for currently depressed or unmarketable mortgage-related assets would obviously be a powerful tool for freeing the channels of credit and investment, many questions remain about how the government would ensure that mortgages and mortgage-backed securities are carefully appraised so that taxpayers do not overpay or, worse yet, stand liable for debts used to purchase virtually worthless assets; that the purchased assets are carefully managed; and that taxpayers have additional protections such as warrants or contingent equity interests in return for their financial exposure.
The Treasury proposal released this past weekend represents a bold move to address the crisis, but one that could create significant risks for taxpayers and greatly increase the national debt. The plan should include regulatory reforms and accountability measures as well as protections for taxpayers.
I look forward to hearing more thoughts from you on effective safeguards for taxpayers that, in my judgment, should accompany the rescue mission.