Senator comments on use of TARP funds approved by Congress
December 16, 2008
Las Vegas, NV – Nevada Senator Harry Reid today addressed a Congressional Oversight Panel (COP) charged with monitoring the use of economic recovery money by the federal government. The meeting’s purpose was to continue learning about the problems that need to be solved, and whether and how TARP might be able to better solve them. The panel oversees the Treasury Department’s use of authority under the Emergency Economic Stabilization Act of 2008, which includes money from the Troubled Asset Relief Program (TARP). The board is independent of Congress and provides reports to the American public.
Below are Senator Reid’s prepared remarks to the panel:
I would like to thank Professor Elizabeth Warren, who I was pleased to appoint to this Oversight Board, and the other board members for asking me to make a few remarks to those gathered here for the Board’s first hearing.
I would also like to recognize Damon Silvers, who Speaker Pelosi and I jointly selected as a member of the Oversight Board. I appreciate all of you taking the time to come to Nevada to hear from real people.
I cannot think of a more appropriate place in the country than Las Vegas to hold this hearing. No place can demonstrate more the struggles that communities across the country are facing as we work our way through one of the most difficult economic recessions in generations.
I am confident that this hearing will provide the Oversight Board important information and insights into the economic crisis that will help guide its work in Washington.
Before the election Congress passed the Emergency Economic Stabilization Act, which created the Troubled Asset Relief Program, or TARP.
In acting, Congress responded to the request of the Administration and the Federal Reserve, which believed that their ad hoc approach to rescuing important financial institutions was not working, and a comprehensive, legislative solution was needed. They believed, and Congress agreed, that the financial system had to be stabilized before a broader economic recovery could follow.
The Administration initially believed they would do this by using TARP to purchase from banks “troubled assets,” which consisted mainly of mortgage-backed securities or mortgages.
These assets had been rapidly declining in value due to the housing crisis and were causing many institutions to suffer enormous losses.
Soon after the law was passed, the Treasury Secretary concluded that this approach was too complicated and would take too much time. So the Treasury shifted gears and began buying preferred stock in the nation’s largest banks as a way to inject capital into those firms.
This capital could be used to help absorb expected losses on real-estate-related securities or mortgages but also could be used to provide funds for lending, which we know is critical to economic growth.
So far, about $335 billion dollars have allocated under TARP. Yet as the economy continues to deteriorate, foreclosures increase, and credit continues to contract, many Nevadans wonder whether TARP is being used appropriately. I share these concerns.
I see two problems with how TARP has been implemented so far.
First, most of the big banks that received capital through TARP -- $225 billion – were healthy and should be using the new capital for lending. They do not appear to be doing so. Instead, these firms appear to be contracting their lending activity, just when businesses and consumers across the country need access to credit the most. This lending contraction exacerbates our country’s economic troubles.
Underwriting standards became too shoddy before the housing bubble, but I believe the pendulum now has swung too far in the other direction. I hear from too many constituents – parents, small-business owners, or business leaders – that need capital but can’t get it because it’s either unavailable or too expensive.
The banks that received TARP funds have a unique responsibility due to the fact that American taxpayers now have an ownership stake in those banks. All of us here who pay taxes are shareholders of those banks. We cannot force them, but for the good of the country, the banks should be putting their TARP funds to use and lending where safely possible.
Second, despite Congress’s clear intent that TARP be used to stem foreclosures, so far no TARP funds have been used for that purpose. Meanwhile, the number of foreclosures increases by day, especially here in Nevada.
Some of the witnesses here, like Gail Burke, can explain firsthand the scope of Nevada’s foreclosure problem and the tremendous strain it brings to working families and entire neighborhoods. If we do not confront this problem more aggressively, experts predict we could see another one- to two-million foreclosures in the next two years.
My colleagues and I in Congress knew that strong oversight of the Treasury Secretary was critical given the large funds at stake. The Oversight Board is just one of several tools included in the legislation to hold the Treasury Secretary accountable to the taxpayers for fulfilling the objectives of TARP.
While I had some role in the makeup of this board, I want to remind everyone that this board is independent from Congress. The board will be a reliable resource to Congress and the public, as we learn from it how the Treasury program is performing and whether it’s helping put our country’s financial system and economy back on track.
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