March 7, 2009
Mr. Dennis Parmelee
233 Mansfield Grove Rd
East Haven, CT 06512
Dear Mr. Parmelee:
Thank you for contacting me regarding the congressional response to the financial crisis. I am pleased to hear from you on this issue.
Our financial markets are experiencing a once-in-a-lifetime event, the full consequences of which are still unfolding. Many banks hold illiquid assets of questionable value, and short-term credit is unavailable or prohibitively expensive. The credit crisis has caused a number of prominent financial institutions to fail.
In order to address this growing crisis, Congress enacted the Emergency Economic Stabilization Act (EESA; P.L. 110-343). The U.S. Department of the Treasury used its authority under EESA to provide over $350 billion in capital and guarantees to the banking, automotive, and commercial lending industries through February 2009. A complete list of transactions made by the Treasury Department under EESA is available online at http://www.treas.gov/initiatives/eesa/transactions.shtml.
As you may know, EESA contained a modified version of my proposal for a bipartisan oversight panel charged with conducting a comprehensive review of the financial regulatory system. This congressional oversight panel was established in November 2008 and has issued two oversight reports that are available at http://cop.senate.gov/.
In February, newly appointed Treasury Secretary Timothy Geithner introduced a new framework to disburse EESA funds. The Obama Administration plans to: (1) administer stress tests to discover which financial institutions require more capital; (2) establish a Public-Private Investment Fund to purchase troubled assets; and (3) work jointly with the Federal Reserve to support lending to consumers and small businesses. In addition, the Administration set up a website for the public to view detailed information regarding whether the conditions placed on banks and institutions under EESA are being enforced; if boards of directors are being responsible with taxpayer dollars and how they are compensating their executives; and how these actions are impacting the overall flow of lending. This new web resource is available online at http://financialstability.gov/.
Most recently, the American Recovery and Reinvestment Act (P.L. 111-5), which I supported, contained provisions significantly restricting the annual compensation and bonuses of senior executive officers of firms that have received federal assistance under EESA. Furthermore, I cosponsored the Troubled Asset Relief Program Transparency Reporting Act (S. 133) introduced by Senators Dianne Feinstein (D-CA) and Olympia Snowe (R-ME). This legislation would require banks to report how they are using financial rescue funds, including an explanation of how such funds have been used to stabilize financial markets and increase the availability of credit to consumers and businesses. This bill would also require the Treasury Department to develop corporate governance rules under the financial rescue program that govern: (1) the hosting, sponsorship, or payments for conferences and events; (2) the use of corporate aircraft, travel accommodations, and travel expenditures; (3) expenses relating to office or facility renovations or relocations; and (4) expenses relating to entertainment, holiday parties, employee recognition events, or similar ancillary corporate expenses. Lastly, this measure would prohibit firms receiving economic assistance from the Treasury Department or emergency loans from the Federal Reserve from using such funds for lobbying expenditures or political contributions.
Fundamental financial reform will require Congress to come together in a bipartisan fashion and confront a number of vested interests that benefit from the current rules. In that vein, as Chairman of the Homeland Security and Governmental Affairs Committee (HSGAC), I initiated an investigation into the need for comprehensive financial regulatory reform. The first hearing, Where Were the Watchdogs: The Financial Crisis and the Breakdown of Financial Governance, was held on January 21, 2009. The hearing examined the question of whether the U.S. financial regulatory system is adequately equipped to protect consumers, investors, and our economy. In my view, rather than contributing to the stability of financial markets, our fractured regulatory system encourages financial institutions to play regulators off against one another. Moreover, new and complex financial products have bypassed the antiquated regulatory regimes; and, in certain derivatives markets, regulation is absent altogether. These problems contributed to the buildup of systemic risks and the eventual breakdown in credit and financial markets last year that has put millions of people out of work and destroyed so much of the savings and home values of the American people. You may access the testimony and watch a webcast of the January 21 hearing at http://hsgac.senate.gov/public/index.cfm?Fuseaction=Hearings.Home. The next hearing will address the need for a systemic risk regulator.
Please be assured that I will closely monitor the Treasury Department’s implementation of the financial rescue plan, and I will continue my efforts to forge a bipartisan solution to this economic crisis.
Thank you again for sharing your views and concerns with me. I hope you will continue to visit my website at http://lieberman.senate.gov for updated news about my work on behalf of Connecticut and the nation. Please contact me if you have any additional questions or comments about our work in Congress.
Joseph I. Lieberman
UNITED STATES SENATOR
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