Boren says vote for bailout plan was necessary to save country

By Joy Hampton

October 10, 2008 — U.S. Rep. Dan Boren of Oklahoma told Claremore business leaders this week that he believes without the $700 billion rescue plan, the American economy would collapse resulting in millions of jobs lost.

“This is real,” he said. “We’re talking the Great Depression if nothing was done. This is a very difficult time for our country.”

The congressman said the nation’s exposure is “up to $60 trillion.”

“This is a very complex problem that affects everyone,” said Boren. “Four- to five-million jobs could be lost in six months.”

During the 10-day period in which Congress was considering Treasury Secretary Henry Paulson’s emergency bailout proposal, Boren said calls from his constituents were 400 to 1 against the plan.

“The calls were not pretty,” Boren said “People were rightfully angry.”

Despite those calls, Boren voted for the plan that was signed into law one week ago. The congressman said the matter is so serious that he voted for the legislation despite public opinion against it. That fact should convey to the public how critical the economic situation is right now, he said.

Boren said the problem started following the Sept. 11 terrorist attacks on the World Trade Center. Stocks went down, and Alan Greenspan said there was a need to make the U.S. economy more liquid. In response to this, there was a move to make housing more affordable.

What Boren didn’t say was that the push for more and better housing for people at all economic levels had started earlier, under the Clinton administration. Following 9-11 and the resulting stock market dips, the housing push grew stronger.

Subprime lending, or higher risk loans, made it easier for those who needed it most, seniors on limited incomes and families with children, to obtain housing.

Information available on the Housing and Urban Development Web site document this trend, and the regulation designed to protect consumers from “predatory lenders.” Some of that legislation was later revoked, further deregulating an industry that was already finding ways to fly under the regulation radar by creating what Boren described as “new products” such as the Credit Default Swap.

The subprime lending push meant people who were denied mortgages by traditional banks could now obtain an adjusted rate mortgage through mortgage companies. The problem was, those companies and their agents, spurred by incentives and high profit margins, made loans to people who really couldn’t afford them.

The companies sold those risky mortgages to banks and institutions that were more than willing to buy them in bulk.

Freddy Mac, Fannie Mae and others were buying and selling mortgage-backed securities in volume.

Housing values continued to rise, and things seemed to be going well.

The economic boon at that time was built on a fallacy that “Housing prices are always going to go up in the United States,” Boren said.

“The housing bubble burst,” said Boren. “We just couldn’t keep going.”

Big companies were left holding large numbers of securities.

“They just had this paper they were selling back and forth,” said Boren.

That paper had lost most of its real value, and some of the largest banks in the nation were in trouble.

It was the largest bank failure in the history of the nation. Money dried up, and businesses that rely on commercial paper – short term loans – to make payroll, cover expansion or other business costs couldn’t get the money to stay in operation.

“Some states were having trouble also,” said Boren. “This affected government services.”

Locally, the lending situation is not as dire.

“Oklahoma banks did things the right way,” said Boren.

The fallout from the national economy would affect Oklahomans and Oklahoma jobs if action such as the rescue plan had not been taken said Boren.

Boren said he does not support executives with golden parachutes and large fees and salaries benefiting from the rescue package and said there should be consequences if companies pay out large sums to the executives who helped create the problem. He also said controls should be put into place to prevent a similar scenario in the future.

“We have to look at a whole new regulatory framework of how we deal with financial investments,” said Boren.

Part of the problem has been new, untraditional products on the financial market, such as the Credit Default Swap.

Credit Default Swaps involved a form of unregulated insurance for hedge funds. That insurance could not cover losses because it was not supported by real dollars. Regulated forms of insurance, such as the FDIC guarantee, are protected by actual reserves to cover insured losses.

Total exposure is hard to determine, but Boren said there are $60 trillion worth of credit default swaps out there.

Asked why the problem was not foreseen, Boren said “I don’t think anyone could have imagined ... this.”

The congressman said it will be important to watch unemployment figures carefully and that an additional stimulus plan might be needed. He said investment in infrastructure such as roads and bridges to put people to work could be part of the solution, much as the days of the WPA projects of the Great Depression.

Keeping liquidity, keeping money in the economy, will be key, said Boren.

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