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Senate approves Wall Street rescue package

Wednesday, October 1, 2008

Senate Approves $700 Billion Wall Street Rescue Package

Congress Strengthened Bush Administration Proposal,
But Critical Protections for Consumers & Taxpayers Still Needed

WASHINGTON, D.C. – The U.S. Senate has strengthened the Bush Administration’s Wall Street rescue package, but more work is needed to protect taxpayers and consumers from the growing financial crisis, according to Consumers Union, the nonprofit publisher of Consumer Reports. The $700 billion package was approved today in the Senate and also includes landmark protections that end insurance discrimination against mental health and substance abuse disorders. The measure is expected to go before the House on Friday.
“Congress deserves credit for strengthening the rescue package with greater transparency, oversight, limits on executive compensation, and provisions that give taxpayers a financial stake in companies that benefit from this plan,” said Pam Banks, Policy Counsel for Consumers Union. “But much more work remains to be done to stem the current tide of foreclosures and to enact reforms in the mortgage and financial markets so that this never happens again.”
Under the Emergency Economic Stabilization Act approved by the Senate today, the government is authorized to spend up to $700 billion to purchase risky assets — mostly mortgage backed securities — from Wall Street firms and banks. The bill provides $250 million initially and another $100 million if the President indicates it is needed. The President may request another $350 million, but Congress can vote to prevent additional spending.
The package approved by the Senate grants the government warrants to purchase stock in companies taking advantage of the plan so that taxpayers share in the benefit if participating companies turn profitable. Executives of firms that participate in the plan will be subject to limits on their pay, severance, bonuses, and stock options. Oversight of the plan will be performed by a bipartisan congressional panel, special inspector general, and regular audits of the General Accounting Office. The package also includes a provision that temporarily raises the FDIC insurance cap to $250,000 from $100,000 for individual bank accounts.
But missing from the package are other key protections sought by Consumers Union and other consumer groups. It does not require financial institutions, and any mortgage purchased by the federal government to be subject to mandatory restructuring to help prevent foreclosures. The plan does not give bankruptcy courts the power to alter all mortgages to help people at risk of foreclosure keep their homes. The package does not include any reforms in the way that mortgages are made and sold so that everyone who gets a fee also keeps some of the risk of future nonpayment.
Consumer groups also sought to include reforms on abusive credit card lending practices in the package similar to the protections in the Credit Cardholders Bill of Rights Act (HR5244) passed by the House last week. No credit card lending reforms were included in the measure passed today by the Senate.
“Today’s financial mess is the result of bad business decisions on Wall Street and the failure of our regulatory system to rein in these practices and protect consumers,” said Banks. “Consumers Union intends to monitor this rescue plan closely and work with Congress next year to help enact effective oversight that protects consumers and the financial system.”
Consumers Union praised the Senate for including landmark mental health parity protections as part of the rescue package. The protections end discrimination against mental health and substance abuse disorder benefits for over 113 million Americans, requiring full parity coverage with physical health benefits. The measure extends to all aspects of an individual’s health plan, including day /visit limits, dollar limits, coinsurance, co-payments, deductibles and out-of-pocket maximums. It preserves strong state parity laws and ensures parity coverage for both in-network and out-of-network service.
“These protections will ensure that millions of Americans suffering from mental illness and addiction will be treated more fairly and get the care they need to stay healthy,” said Adrienne Hahn, Senior Attorney/Program Manager for Consumers Union.
Pam Banks – 202-462-6262