BOND PUSHES CREDIT CLEANUP PLAN
No More Throwing Good Money After Bad, No More Ad-Hocracy,
It’s Time to Take Decisive Action to Remove Toxic Assets, Fire Failed CEO’s
WASHINGTON, DC – U.S. Senator Kit Bond today outlined his plan to tackle the root of the economic crisis – our credit crisis – to protect Main Street families, workers, and small businesses and put our nation on a real road to economic recovery. Bond described his American Credit Cleanup Plan on the floor of the Senate today.
“All Americans need to care about our credit crisis and the government’s response. My plan is the roadmap we need to solve this crisis, stop throwing good money after bad, and get credit flowing to Main Street families, workers and businesses.”
Despite the trillion-dollar stimulus bill passed by Congress earlier this month, the economy will not recover until we tackle the root of the problem. Bond stressed that he agrees with President Obama who said last week during his joint address to Congress that we must solve America’s credit crisis.
Right now our financial system is not working – the credit markets have become clogged with toxic assets. Unfortunately, to date the government’s response – primarily the Troubled Asset Relief Program (TARP) – to this crisis has failed to solve the toxic assets problem. And the new Treasury Secretary’s so-called Financial Stability Plan offers few details and still fails to answer the question of how toxic assets will be addressed.
Bond emphasized that failing to act decisively would doom the Nation’s families and workers to a recession much longer and deeper than necessary. Japan similarly lacked the will to clean up its sick banking system and spent a “lost decade” in the 1990s stuck in recession. Failing to act could result in families unable to get loans to refinance homes, farmers unable to get credit to buy seed or fertilizer, students unable to get loans to go to school, and businesses unable to get credit to meet payroll, keep workers, or expand until we unlock the credit system. Also, just spending more taxpayer dollars without solving the real the problem is also not an option.
Bond’s American Credit Cleanup Plan is tried and tested – based on our experience during the Savings and Loan crisis – and would get to the heart of the problem by removing toxic assets from banks in a manner free from political interference and micromanaging. First, under Bond’s plan, there would be an objective “stress test” that would determine if the bank or financial institution would fail without taxpayer funds. Second, for these insolvent banks, toxic assets would be removed. The FDIC, using existing authorities, would act as a temporary conservator of these sick institutions, protect depositors, and quickly relaunch the restructured company into the private market. The government would hold the bad assets until market conditions improve. Third, the failed executives and members of boards of directors who were responsible for the failure of the sick financial institutions would be removed.
“Capping pay and taking away corporate jets is simply not enough. Firing the senior executives and board of directors who failed the company and its shareholders must be a pre-requisite to any government assistance and intervention,” said Bond.
Bond’s American Credit Cleanup Plan is a common sense and cost-effective approach that will protect taxpayers and ensure accountability, transparency, and oversight. The Senator’s plan would put an end to the current and failing ad hoc strategy to the credit crisis.
CLEANING UP AMERICA’S CREDIT CRISIS
Senator Kit Bond
Our financial markets make up the lifeblood of our economy, which families depend on to buy homes and cars, students need to receive college loans, and small businesses must have to purchase supplies and meet payroll needs. Solving this crisis is critical to protecting Main Street families, workers, and small businesses from even more suffering.
Goal: Clean up the frozen and clogged financial system so that it can once again be the engine for economic recovery.
Problem: Existing “stabilization” or “rescue” plans fail to address the core problem of toxic assets that are clogging financial institution and preventing them from restoring the flow of credit, regaining the public’s confidence, and powering the Nation’s economic recovery.
Solution: Remove toxic assets from sick financial institutions and relaunch them again as healthy, private companies able to power sustained economic growth.
Principles for Action:
o Decisive government action, without political interference, that does not prolong uncertainty or delay the ability of the economy to recover and create new jobs – no lost decade like Japan in the 1990s!
o Stop pouring good taxpayer money after bad, propping up sick financial institutions without fundamentally addressing the core of the problem – toxic assets that are preventing them from performing.
o Minimize government involvement by relaunching restructured entities back into the private sector as soon as possible.
1. ASSESS MAJOR FINANCIAL INSTITUTIONS TO IDENTIFY THOSE IN CRITICAL NEED – Use an objective and clear “stress test” to assess the health of the largest financial institutions in a regular and on-going manner.
2. IDENTIFY HEALTHY INSTITUTIONS – Identify institutions that pass “stress test” with transparent disclosure of assets, liabilities and holdings sufficient to restore public confidence in their ability to perform, lend, and power the economy to a sustained recovery.
3. CLEAN UP SICK INSTITUTIONS – Put sick institutions under independent, non-political, temporary conservatorship overseen by the FDIC with a clear exit strategy so that toxic assets can be cleaned out and a restructured company capable of performing, lending and powering a recovery can be returned to the private sector.
o PROTECT DEPOSITORS – First and foremost, depositors of the sick institution must be protected.
o REPLACE FAILED EXECUTIVES – Top executives and directors who oversaw the deterioration of the company and have a continuing interest in minimizing past mistakes must be removed and replaced with professionals with the expertise and commitment to clean house.
o REMOVE TOXIC ASSETS – The conservator must identify and remove toxic assets to a new government corporation established to hold these assets until maturity or improved market conditions allow the recovery of their value so that the proceeds can benefit taxpayers.
o RELAUNCH CLEANSED BANKS – Once cleansed of toxic assets, the restructured institution will not need ever larger amounts of taxpayer capital to survive, and it can be returned to the private sector, with government non-voting equity providing taxpayers a share in upside profits.