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The Main Street Rescue Plan

Posted on September 28th, 2008 in Federal Budget, National Debt by PerotCharts

The Main Street Rescue Plan

Congress will be voting on a revised Wall Street Bailout Plan as early as October 1, 2008. If you believe that Congress should be focusing on Main Street first, then please click here to send an email to your elected officials telling them you don't want the government spending billions of dollars on bad loans.
Phase One - Immediate Action by U.S. Congress

1. Securities and Exchange Commission
Mandate that the SEC:

  • Suspend its "mark-to-market" accounting regulations that are causing the write-down of bank assets to fire-sale prices, and thereby contracting the supply of available investment capital.
  • Tightly restrict short sales of financial stocks.
2. Federal Deposit Insurance Corporation
Mandate that the FDIC:

  • Declare a national emergency during which time the FDIC will back depositors and general creditors of banks that fail and resolve those collapses in a way that does not cost depositors, such as selling deposits and loans of the failed institution to another institution.
  • Reconstitute the FDIC's "net worth certificate" (NWC) program that Congress created in the 1980s for the savings and loan crisis of that era. The NWC required no federal subsidy or cash outlay. Under the NWC, the FDIC bought subordinated debentures in the bank and issued FDIC notes to the bank, with the interest being the exact same on both instruments. Under this program, the FDIC assesses the financial condition of banks and shores up weak ones that can survive if given time to resolve their problems and merges/liquidates those too weak for the NWC program. Under the NWC program, the FDIC will provide strict supervision of participating banks, including the employment of key personnel and their compensation, until the crisis has passed. Again, no federal subsidies or outlays are required.
  • Declare a 120-day moratorium on payment of dividends by banks. Executives of banks that need capital often worry that failing to pay dividends is a sign of financial instability. A temporary ban across-the-board will end fears and give FDIC time to strengthen banks' capital base.
  • Expand FDIC insurance coverage to other financial institutions, including hedge funds, placed under federal regulation.
3. Stabilize Owner-Occupied Homes
  • Declare a 120-day moratorium on mortgage foreclosures. This will (a) keep families in their homes while components of the broader plan are put in place and the real economy is revived; (b) better ensure that the property does not fall into disrepair; and (c) reduce the decline in housing values created by unoccupied, foreclosed homes.
  • Devise a post-moratorium program to do work out plans for owner-occupied homes, including federal cash subsidies for owners that can pay for their homes if given time to financially survive this crisis.
  • Amend federal law so that federal bankruptcy judges are able to modify the terms of mortgages of homeowners in bankruptcy and thus give them more time to work through their financial problems and keep their homes.
4. Share Rescue Profits with U.S. Taxpayers
  • Whenever the government makes a loan or an equity investment in a distressed financial institution, such as the AIG deal, the public gets a share of any future recovery profits.
  • Create a true "Social Security Lockbox" for the warrants and equity the federal government acquires as part of this financial rescue. The goal is not long-term federal ownership, but to assist these organizations in returning to a sound operation and then make a prudent sale of the public equity.
  • Restrict the investment of those funds to AAA-rated state and local infrastructure bonds, which provide safe, long-term investments that will stimulate the real economy, create new jobs, and fiscally strengthen the Social Security System.
5. Oversight
  • Create an independent agency/board to oversee and manage the non-FDIC/SEC portions of the Rescue Plan and report to Congress on a regular basis. The Board would consist of:
    • Secretary of Treasury (Chair).
    • Chairman of the Federal Reserve Board,
    • Chairman of the FDIC,
    • Chairman of the SEC,
    • Comptroller General of the United States,
    • One appointee by each of the Majority and Minority Leaders of the House of Representatives and the U.S. Senate.
  • Create a new Joint Committee of Congress to oversee the plan and provide recommendations to Congress. The new Joint Committee would consist of representatives from all standing committees with partial jurisdiction for resolving this financial crisis. The goal is to involve all relevant committees in this rescue plan.
6. Create an Emergency Financial Crimes Office in the Department of Justice
  • The mission of this unit is to investigate any criminal acts that led to this crisis, hold the guilty accountable, and disgorge assets from individuals and institutions found guilty.
  • The head of the Office will be an experienced, non-political career prosecutor appointed by the President and confirmed by the U.S. Senate.
  • The Congress will provide sufficient funds to staff the Office with qualified attorneys and the necessary support staff of accountants and investigators.

Phase Two - Action by Congress Post-Election

7. Reinstitute a modernized Glass-Steagall Act, which covers and regulates all financial institutions including hedge funds
  • The goal is to restore prudence and accountability to the U.S. financial system through appropriate regulation.
  • Oversight of the financial rescue.

30 Responses to "The Main Street Rescue Plan"

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  • 30
    John Locke Says:
    October 1st, 2008 at 9:50 pm Looks somewhat like the Resolution Trust Corporation rescue plan for S&ls. Good! As such, it is based on a workable solution and not on fairy dust and, as I can recall, the RTC was a whole lot less expensive.
  • 29
    Paul Wittkamm Says:
    October 1st, 2008 at 9:48 pm I agree with much of the Main Street rescue plan. There is one thing missing however.


    The Paulson plan is a government purchase of illiquid assets from banks - so the banks can start lending again. The illiquid assets will be sold later on. It is projected that taxpayers would take a small loss, break even, or even make a profit on this proposal.

    Warren Buffett said that whoever buys these assets should be making a pretty good profit!
  • 28
    kit1544 Says:
    October 1st, 2008 at 8:58 pm This plan appears to be good but it left out one very important thing. Prosecute any bank, real estate agent, mortgage company, or any other person/entity that defrauded people (especially those who made out false application forms for martgages, etc.) and hooked them into committing to subprime mortgages. CON does not mean conservative it means a con job!

    Set up an investigating committee of the best financial minds you can follow the trail of the 'bad' mortgages and buy them back!

    Require every officer who left every company that is in 'danger' of collapse to pay back their 'golden' umbrellas. Put limits on severance packages, by percentage of salary not huge ballon payments. Why should someone who is fired make money off it? That's sure a twisted view of life.
  • 27
    dd Says:
    October 1st, 2008 at 8:50 pm Excellent comments Dfisher and k, but I'd also like to add:

    The oversight committee (OC) members are unacceptable as they stand. You would have Paulson, Bernanke and Cox on there. Unless they have been removed (hopefully indicted) and replaced with competent financiers or economists, what we have is the foxes guarding the henhouse. NO thank you.

    Dfisher said that the OC should not have anyone who stands to gain. I would expand that to exclude anyone who has gained - Raines, Gorelick, Johnson, Dodd, Frank, etc.
  • 26
    EI Says:
    October 1st, 2008 at 8:26 pm Foreclosures are regulated by the States NOT the Federal Government.

    Typically Foreclosures take 90-120 or more after the deadbeat has been delinquint and living rent and mortgage Free for 90 days.
    Let's See 90 + 120 + an Additional 120 = 11 Months .

    Pretty Sweet Deal for DeadBeat.
    Have a Free Place to Live for a Year! If The DeadBeat Refuses to Leave, It may Take a Month or More For the Person Who Loaned Them the Money, Who Now Owns The Property, to Get Them Out.

    Another Point, when a borrower gets behind the Lender usually will work with them if they can come up with Some Money at any time before the Foreclosure Sale Date.

    Besides the Fed mandating a Foreclosure Moratorium iv a Violation of States Rights.

    I Cannot Support This Plan. It is a BAD Plan

    Put a Moratorium on Capital Gains Taxes. That Will Cause a Huge Infusion of Private Money

    Real Estate Broker Who has Worked Foreclosures for 16 Years
  • 25
    pjbannister Says:
    October 1st, 2008 at 8:06 pm Why should FDIC insurance be extended to hedge funds? This is typically an investment for the very rich and has high risk. Why would I want to be on the hook if the hedge fund investors take these type of risks? If they make a windfall, do the tax payers get a percentage? Of course not, and they deal with their losses.

    Because of what Congress has done up to now, I really don't trust Capitol Hill to help me out. I have read quite a bit of the bailout bill that it should be called the "bailout outline.

    There is so many holes in this bill you could drive a truck through it. On top of that, you have a political appointee running the whole show. Sure he has oversight, Fed Chairman, Head of FDIC, HUD, Director of Finance, etc. Looks like the "good ol' boys" are at it again.
  • 24
    DonnaG Says:
    October 1st, 2008 at 6:34 pm I totally agree with Responses 1, 7, 11 and 12. In addition, I advocate strict regulation of Hedge Funds, which now, I believe, answer to absolutely no one.
  • 23
    Jane Q. Public Says:
    October 1st, 2008 at 6:32 pm Not all homeowners who defaulted committed fraud. I know of some people who got caught in the slump of '00 and who lost their homes as a result. There was nothing fraudulent about that… they took on the obligations in good faith, but circumstances conspired such that it did not work out.

    In any case, I see it this way: if someone ill-advisedly took on a mortgage that was offered equally ill-advisedly, by a mortgage company that was overleveraged (or sold to a finance company that was), then BOTH parties share some responsibility. However, I believe the responsibility is still slanted toward the mortgage company, which is supposed to be expert in such matters and should definitely know better.

    In which case, homeowners should receive a bailout at least equal to that of the finance companies that helped to cause the situation (and later made it worse).

    $700 billion would buy a lot of mortgages.

    No, I am not proposing two bailouts! But offering to bail out the financiers, who hold the majority of the blame, without much helping others is definitely not equitable.
  • 22
    my911e Says:
    October 1st, 2008 at 5:08 pm Well….

    RE Item #4…"PROFITS"….The "share" should reflect Taxpayer Outlay…like 100%
    Social Security LockBox…are you kidding….the only thing "they" have done is to plunder Social Security…

    Item #5 - Oversight
    NO Thank You..the Fox is already in the Hen House
    Privatize Freddie & Fannie
    Make Jack Welch CEO

    "the players"

    Return $700,000,000,000 to AMERICA! ! ! ! !
  • 21
    paustin Says:
    October 1st, 2008 at 4:53 pm I like the proposed plan a lot better than what is now being considered by Congress; however, I have a few concerns.

    I think that the plan needs to better address the future forclosures issue. While placing a moratorium on foreclosures seems like a good idea, it may have negative consequences for at-risk holders of adjustable rate mortages. By "at-risk" I am referring to homeowners that are financed with adjustable rate mortgages that are currently able to afford their mortgage payments, but may not be able to do so if there is a rapid increase in interest rates. I am concerned that all the market restrctions and moratoriums may lead to a rapid increase in interest rates for existing loans. (I am not an economics expert, so I cannot explain the causality between the two events; however, my instinct tells me that whenever you place sudden restrctions on the free market, there are likely to be unintended negative consequences). A sudden increase in interest rates would hurt current holders of adjustable rate mortagages, force many of them to foreclosure status, and further magnify the crisis. While I don't believe that a freeze on interest rates for mortgages is feasible or advisable,I think that there should be some sort of reasonable controls placed on interest rate increases for adjustable rate mortagages. If someone has an idea of how to do this, I would be interested in reading it.

    Also, while I believe it is important to hold people accountable for criminal activity, I am concerned that creating an Emergency Financial Crimes invsetigation may turn into a witch hunt. It seems lately that whenever something goes majorly wrong with government, we feel the need to appoint a special prosecutor to find a crime to explain the problem. The investigation eventually morphs into a partisan witch hunt, and some trivial crimes are spotlighlted as the cause of the problem when the real cause of the problem is the collective stupidity of several individuals. Although I believe that the cause for this problem needs to be investigated, I think that it shouldn't be treated as a criminal investigation. The investigation process would be more sucessful if it is more concerned about identifying the cause of the problem than trying to find a scapegoat. If the investigation happens to find evidence of criminal wrongdoing, then it should be prosecuted. I would recommend that the investigation be conducted by an independent panel, such as was done for 9/11, and not by the Department of Justice. The Department of Justice can get involved if there is evidence of criminal activity.
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