Congressman Sander Levin

Financial Crisis

Congressional action was needed last fall to stabilize credit markets that were thrown into turmoil by the global financial crisis. What might have started as a Wall Street problem quickly became a full scale problem on Main Street -- for families, state and local governments, the auto industry and many types of small businesses. For this reason, Congress approved $700 billion for the Treasury Department to promote financial market stability and restore the flow of credit under the Troubled Asset Relief Program or “TARP.” The last Administration used the new law to purchase temporary equity stakes in banks to help stabilize financial markets and to extend bridge loans to GM and Chrysler.

Despite Congressional efforts to ensure rigorous taxpayer protections and oversight of the program, many of us have been disappointed with the way the first $350 billion of this money has been spent. There have been the disturbing stories of corporate junkets, bonuses and office redecorations. Credit remains difficult to obtain for too many families and businesses and foreclosures continue to mount.

On January 21st, the House Passed the TARP Reform and Accountability Act. The bill would impose new conditions on the program to protect taxpayers, and directed that some of the second $350 billion be spent for new purposes. The bill would have required institutions receiving TARP funds to report on their use of funds, including (for banks) whether they have increased lending. It would have imposed more stringent executive compensation restrictions, as well as other taxpayer protections like warrants to buy stock in the company receiving assistance. It would have required $40-$100 billion to be used for foreclosure mitigation, and required the Treasury to develop a comprehensive plan to reduce foreclosures. Finally, it would have directed that TARP funds be made available to community banks that are the primary source of credit for many families and small businesses. While this bill did not become law, the Obama Administration has taken many of these steps voluntarily as it has used the second $350 billion in TARP funds.

In response to the outrageous bonuses paid to AIG executives, the House of Representatives has passed legislation to recoup these payments and prevent such payments in the future.On March 19th, the House voted overwhelmingly for legislation to tax the bonuses of highly paid individuals at a rate of 90 percent if their employer received more than five billion dollars in Federal assistance under TARP.

On April 1st, the House approved legislation strengthening the executive compensation requirements for TARP companies going forward. The bill prohibits financial institutions receiving a direct investment of capital under TARP, as well as Fannie Mae and Freddie Mac, from paying employees unreasonable or excessive compensation, or any bonus that is not directly based on performance-based standards.

The Obama Administration has responded to the concerns raised by many of us in Congress and taken important steps to use these funds with more transparency and accountability, to more effectively restore the flow of credit and to prevent foreclosures.