WASHINGTON, NC (WBTV) - The U.S. House of Representatives rejected a $700 billion emergency bailout bill for troubled financial companies Monday afternoon.
Even as the electronic roll call began, Democratic and Republican leaders were uncertain about having enough votes to pass the plan.
This is the biggest government intervention in markets since the Great Depression.
Voting in favor of the bailout plan were 141 Democrats and 66 Republicans for a total of 207 votes.
However, there were 226 lawmakers who voted against the bill including 94 Democrats and 132 Republicans.
Three Congressmembers from our area, Sue Myrick (R), Robin Hayes (R) and Patrick McHenry (R), voted against the bill. Congressmembers Virginia Foxx (R) voted for the bill along with Mel Watt (D).
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(The following is from Congressman Robin Hayes about his decision to vote against the $700 bailout plan.)
Washington, DC - Congressman Robin Hayes today voted against the $700 billion bailout legislation. Hayes cited a lack of US taxpayer protections and foreign banks and investment firms being eligible for US tax dollars.
"I truly believe we have a credit crisis that is negatively impacting our economy," said Hayes. "But one of the questions of concern I raised last week was eligibility, and this bill expands eligibility beyond where I think it should be.
"The initial draft of the proposal that came from the Treasury was fundamentally limited to US financial institutions. However, during the course of negotiations, this changed, and now foreign banks and financial companies are just as eligible to receive US taxpayer dollars as an American company."
Section 112 of this legislation contains the following provision:
To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.
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(The following is from Congresswoman Sue Myrick's office about her decision to vote against the bill.)
Washington, DC - Representative Sue Myrick (NC-09) has issued the following statement regarding financial rescue package vote:
"I plan to vote against the financial package that is before the House today. While I believe that something must be done swiftly to stave off a financial crisis, I'm not convinced that this particular plan is the answer.
My conservative colleagues have successfully made a dangerous plan safer for the American people, and they deserve credit for standing up for the average taxpayer. That said, I don't believe that the bill before us today addresses some of the most serious problems facing our financial system, and I don't believe that simply buying up bad assets with taxpayer money is in the interest of free enterprise, the government, or the taxpayer. The plan, unfortunately, creates bad incentives for poor management and risky business practices.
This financial problem was caused by government intervention in the mortgage market that encouraged - if not forced - lenders to make risky loans and created a housing bubble that finally burst. Financial institutions made loans to people with little or no income verification and limited creditworthiness. The poorly-designed, poorly-managed Government Sponsored Enterprises, Freddie Mac and Fannie Mae, bought these subprime mortgages and packaged them as securities, with the implicit understanding that they were backed by the federal government. Wall Street got greedy and leveraged assets at far from responsible ratios to obtain easy credit and capital to gobble up these securities. Finally, insurance institutions were far too quick to offer insurance for these securities, which were often given the highest credit ratings despite the underlying weakness of the mortgages of which they were comprised.
Sooner or later, this house of cards had to fall. Unfortunately, the financial institutions involved are so large and the sums of money so great that the crisis has affected nearly every sector of our economy. Banks are suspicious of one another and they're no longer extending credit. Without the exchange of commercial paper, it's difficult for businesses to get loans. Homebuilders can't sell their properties because the mortgage market has frozen.
I believe that there are alternatives to the risky plan that is before us, including, but not limited to the following:
Don't put Taxpayers on the Hook:
- Offer secured loans from Treasury at a punitive interest rate to provide needed capital and give firms time to restructure, while still holding shareholders and debtholders accountable. This is better than directly involving the government in the mortgage backed securities market.
- Allow FDIC to purchase "net worth certificates" in troubled banks that are determined to be potentially viable, but need secure capital. Once the FDIC issues a note, banks agree to strict supervision. No huge subsidy necessary. This was done to resolve the savings and loan crisis in the 1980s.
- Provide a significant and immediate tax credit for purchasing homes.
- Implement targeted tax relief for the financial services sector to provide an immediate infusion of liquidity and capital without handing a check to the Treasury Department. This could include a sharp reduction in capital gains taxes in order to get investors to provide needed liquidity.
- Require the SEC to immediately suspend fair value accounting standards as applied to mortgage backed securities, or "mark to market" accounting standards. This would more accurately reflect the value of assets.
- End "naked" short selling: Don't allow short sellers of stock to short a stock without actually possessing it. Short sellers could only sell when there are up ticks in the market.
- Mandate that the GSEs no longer securitize any unsound mortgage that is: (1) not fully documented to meet minimum requirements for work, assets, and income, (2) not backed by private mortgage insurance for no less than half the value of the loan, (3) written to comply with the Community Reinvestment Act and otherwise would violate a firm's lending rules.
- Mandate that no financial firm can both participate in the purchasing program and act as an agent of the government in order to limit potential conflicts of interests.
- Require the Treasury Department, in conjunction with the Federal Reserve, to publish a list of financial firms who pose a legitimate systemic risk to the entire economy, those truly "too big to fail," and limit the purchasing program to those firms."