Lobbyists Get Their Hands on Rescue Bill

The News & Advance
Published: October 2, 2008

Wednesday night in Washington, the adults finally took control of things. In the U.S. Senate, a bipartisan majority of 74 senators voted overwhelmingly to approve the $700 billion financial sector stabilization bill, putting a great deal of pressure on the House of Representatives to reverse Monday’s ill-advised rejection of the plan.

The House should take up the Senate’s bill today, depending on whether Democratic and Republican leaders can get their respective caucuses in line.

In Monday’s disasterous vote, two local representatives — Republicans Virgil Goode of the Fifth District and Bob Goodlatte of the Sixth District — were among the shortsighted majority who voted against the proposal. When the Dow Jones plunged 778 points and $1.2 trillion vanished from the pension plans and 401(k)s of millions of Americans following their vote, the heat increased on the House to reverse course. The House’s e-mail servers were still swamped Thursday afternoon with constituents trying to write their representatives.

But just who are our representatives in Congress listening to? Expert economists warning of the increasing dangers to the nation of frozen credit markets? Constituents angry at ideologues who refuse to do what’s best for the country? Or financial industry lobbyists trying to save their hides?

If you guessed No. 3, sadly, you’d be correct.

In a teleconference Tuesday, Goodlatte talked up changing an innocuous accounting rule, known as “mark to markets,” as a way to save taxpayers some money in the cost of the financial rescue. “This would be a major consideration,” the congressman told reporter Ray Reed of The News & Advance.

What the good congressman didn’t say was that it’s something banking industry lobbyists have been trying to get rid of for 20 years. And they’re using the current crisis to try to get what they want.

Following the savings and loan scandal of the late 1980s, the Securities and Exchange Commission (SEC) required financial institutions to value their assets to current market valuations, not the original purchase price.

For example, Bank XYZ holds a mortgage on a $600,000 home. Unfortunately, that McMansion sits on a street lined with other $600,000 McMansions for sale. Realistically, that mortgage is worth far less than its original face value of $600,000. Under current rules, the bank would be required to write-down the value of its assets to reflect that fact and, here’s the kicker, set aside more money in its loan-loss reserves in case that mortgage goes into default. In other words, there’s less money they can call “profit.”

There’s no way on God’s green Earth that mortgage is still worth its original value, yet bankers and their lobbyists want to be able to claim that it is. It’s deceptive and it paints a false but rosy picture of an institution’s financial health.

And Bob Goodlatte wants to abet them in this deception of the public.

The Wall Street Journal, in a recent story, quotes from a letter PricewaterhouseCoopers LLC Chairman Dennis Nally sent to Congress: “We have all seen what can happen when institutions are allowed to mask huge losses in asset values. (Suspending the mark-to-market rules could) plant the seeds for the next crisis.”

And so-called fiscally conservative Republican representatives are touting this rule change as a way out of the current crisis? Incredible.

What Bob Goodlatte and his allies are doing is selling out the nation, based on the word of a gaggle of lobbyists.

He ought to be ashamed. But he’s probably not.