Defending the Economy from Financial Crisis

Today, Senator Casey is sending the following message to his constituents in the Commonwealth of Pennsylvania:

Everyone is worried about the turmoil in our financial markets.  The credit and liquidity problems that affect banks and brokerage houses also threaten employers and small businesses as well as the savings and pension accounts of working families.  This is not simply my opinion, it is the assessment of the Chairman of the Federal Reserve, the Secretary of the Treasury, and many economists and financial experts in our country.

Like you, I am not happy with the current crisis, and I’m angry about the eight year climate of deregulation and deference to Wall Street that got us into this mess.  Over the past few weeks, I have talked personally to financial experts from Federal Reserve Chairman Ben Bernanke to respected economists.  I have studied various proposals to improve the situation, and I have closely questioned the Secretary of the Treasury and Chairman Bernanke as a member of the Senate Banking Committee.

Based on the many conversations I have had and reports I have received, I have come to believe that the federal government has to intervene soon and in a serious way.  Otherwise, the consequences could be very bad for our families and our economy.

Here is what some experts have said:

"Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America’s financial system. They’re right to be outraged, but doing nothing isn’t a serious option,” said Paul Krugman. (New York Times, September 26, 2008)

"Without trust and confidence, business can’t go on, and we can easily fall into a deeper recession and eventually a depression. It would be disastrous to have no plan,” said Andrew Lo, a professor at the M.I.T. Sloan School of Management. (New York Times, September 26, 2008)
"The problem is so big that if somebody doesn’t step in, it will cause a panic. Things could worsen to the point that we could see double-digit unemployment,” said Michael Moebs, economist and chief executive of Moebs Services. (New York Times, September 26, 2008)

"…but the need for speed is clear. In this case, there really are weapons of mass destruction -- financial derivatives -- that threaten to destroy our system from within. Move quickly, Washington, with appropriate safeguards,” said investment manager William H. Gross. (Washington Post, September 23, 2008)
"The credit markets are nearly dysfunctional, leaving the economy at risk of falling into a downturn unlike any most of us have lived through, and the government is about to commit billions of dollars after only a week of political debate. There’s no time to waste,” said economics columnist David Leonhardt. (New York Times, September 24, 2008)

"Most importantly, it is not clear that the bailout will actually impose any net costs on U.S. taxpayers, since it may prevent further systemic effects that bring down the financial sector and, with it, the world economy.  Just because system effects are difficult to quantify does not mean that they are not real,” said Robert Schiller, the Arthur M. Okun Professor of Economics at Yale University. (The Guardian, September 19, 2008)

"If nothing is done, the potential for these markets to seize up in a big way is definitely there…When you look at the history of these crises, when things spin out of control, the cost to fix it later goes up exponentially," said Frederic S. Mishkin an economist at Columbia University who was a Federal Reserve governor until last month. (Washington Post, September 26, 2008)

"It's easy to forget amid all the fancy stuff - credit derivatives, swaps - that the root cause of all this is declining house prices.  If you can reverse that, then people start coming out of their foxholes and start putting their money in places they have been too afraid to put it," said Alan Blinder. (International Herald Tribune, September 21, 2008).
"Wall Street isn't this island to itself. Even people with good credit histories are having a very hard time getting loans at terms that make sense. If that gets worse, we're going to be stuck in the doldrums for a very long time, because that directly blocks healthy economic activity," said Jared Bernstein, senior economist at the Economic Policy Institute. (International Herald Tribune, September 21, 2008)

Like many people who have called my office, I did not think that the original proposal from the Bush administration to deal with the crisis was adequate.  Any remedy has to put limits on the salaries and bonuses of the executives whose companies would be helped.  The proposal also has to protect taxpayers' investment and give that investment a chance for a profit if the asset purchases work.  And, in the long run, we need regulation to make sure that this crisis does not happen again.

I have told the Administration and my fellow Senators that any plan has to contain the following elements:

• Executives must be held accountable and their compensation must be limited, including the elimination of golden parachutes and claw-back provisions if performance does not match previous pay;

• Taxpayers must be protected and the Treasury must demand warrants and other forms of equity from financial institutions that participate;

• Substantial oversight by outside agencies including the Government Accountability Office and Inspectors General must be built in to ensure accountability; and

• Conflicts of interest and contracting rules must be enforced.

In addition, the plan should be expanded to include substantial measures to end the foreclosure crisis and stabilize housing prices.  This includes:

• Expanding government efforts to restructure mortgages it owns through FDIC, Fannie Mae, and Freddie Mac;

• Expansion of the recently passed HOPE for Homeowners plan to let FHA refinance families into affordable mortgages; and

• Allowing more mortgages to be restructured under judicially supervised loan modification procedures so that people who can afford to keep their homes and pay their mortgages are able to.

I know that the people of Pennsylvania take responsibility for their actions, pay their bills, and avoid unwise risks.  I share their frustration that a system running out of control and paying exorbitant salaries to those responsible is now threatening prosperity for all of us.  However, these risks are real – even for the most responsible Americans.  I am working to find a solution that will:

• Protect our homes;
• Protect our savings and retirement accounts;
• Protect our small businesses;
• Protect our ability to send our children to college; and
• Protect our jobs.

Failing to act will not simply punish those who brought us to this situation.  It will punish everyone.

Here are the actions I have taken so far:

• Spoke on a Conference Call with Secretary Paulson and Chairman Bernanke on September 19;

• Wrote to Secretary Paulson and Chairman Bernanke on September 19.  CLICK HERE to see the letter;

• Spoke with Chairman Chris Dodd several times over the weekend of September 19th and throughout this past week;

• Participated in a hearing of the Senate Committee on Banking, Housing and Urban Affairs on September 23, where I questioned Secretary Paulson and Chairman Bernanke.  CLICK HERE to read my opening statement;

• Participated in a Joint Economic Committee meeting on the State of the Economy with Chairman Bernanke;

• Wrote to Secretary Paulson and Chairman Bernanke again on September 24.  CLICK HERE to see the letter;

• Participated in a Caucus Meeting with Senate Democrats and Secretary Paulson and Chairman Bernanke;and

• Spoke with Chairman Bernanke on the phone following the White House Meeting of September 25.

I will be working in Washington this weekend.  I will continue to push for solutions to this crisis and I will continue to report to you on our progress.