Wall Street Bailouts

Floor Speech

Mr. SHERMAN. I thank the gentleman from Florida for his remarks, where he refers to AIG as ``too big to fail.'' The latest from Wall Street is, well, it's not so much too big to fail, but too interconnected with the rest of financial institutions. ``Too interconnected to fail'' is the new line. The fact is this: AIG was too well-connected to fail. AIG should have been in receivership, but that would have disadvantaged the richest, most powerful interests in the world.

Now let us look at the new public-private partnership plan being put forward by the Treasury. It involves a thousand times as much money as AIG executives received in bonuses and it would make the American people a thousand times as angry, except for the fact that it is so technical that the American people may not fully understand it.

Here is how it's supposed to work. The taxpayer puts up 94 percent of the money. The taxpayer takes 94 percent of the risk that the assets purchased will end up being worth nothing. Ninety-four percent. And the taxpayer gets 50 percent of the profits. The private Wall Street interests put up 6 percent of the money, maybe less, and they get 50 percent of the profits. What this will mean is that this new entity that's created, the public-private partnership, will go out and buy these extremely difficult-to-value assets. They're going to overpay for some. They're going to underpay for others. They're going to make money on some. They're going to lose money on others. When they make money, half the profit goes to Wall Street. When they lose money, 94 percent of the loss goes to the taxpayer.

These entities are going to be 94 percent government-owned and financed. At least we're putting up 94 percent of the money. AIG was 80 percent government-owned and when they paid a million-dollar bonus, the country was angry. Well, what about an entity that's 94 percent government-owned? You can be sure this entity will be paying out million-dollar salaries, million-dollar bonuses. I wonder whether the American people will focus on it.

What we have had is a circumstance where so far this government has transferred hundreds of billions of dollars of wealth to Wall Street. But all that money has gone to the big, well-known, publicly traded companies on Wall Street. Well, there is another important tribe on Wall Street, and that is the hedge funds. Now with this new program, we can transfer hundreds of billions of dollars to the right side of Wall Street and hundreds of billions of dollars of taxpayer equity, taking hundreds of billions of dollars of taxpayer risk, for the benefit of the left side of Wall Street. Apparently some people think that's what fairness is--massive wealth transfer to both sides of Wall Street.

Now last week we passed a tax bill. That bill has been criticized by Wall Street and the administration. But they've ignored the statements of Lawrence Tribe, the foremost expert on constitutional law, the professor at Harvard Law School, who outlines step by step why that law was constitutional. Now I had problems with the law because it had loopholes in it. It will allow the Merrill Lynch executives to keep their bonuses. It allows million-dollar-a-month salaries. And I will introduce tomorrow what I think is a much more comprehensive effort to say that those who work for bailed-out firms shouldn't get more than a half million dollars a year, that whatever they get in excess to that they ought to return to their companies, and I hope we will have some cosponsors for that bill. But it is very plain from Lawrence Tribe's analysis that the approach we took in this House yesterday is fully constitutional and that the flimsy constitutional arguments that are being made against it hold water only because they're repeated over and over and over again in somber tones by Wall Street and the establishment.

Let me give you another example. Congress, the Republican Congress in 1996, passed a 200 percent excise tax which is now law, and that excise tax falls on excess bonuses and excess salaries to executives, and it was retroactive, 6 months retroactive from when it was passed and it took effect 6 months earlier. Why does nobody know about this code section with a 200 percent tax on excess compensation? Because it didn't affect Wall Street, so it was not controversial. It affected those who received excess compensation from charitable organizations.

I look forward to working with my colleagues to pass reasonable limits on executive compensation and to make sure that the taxpayer gets more than half the benefits when we put up 94 percent of the equity.

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