Fiscal Stimulus and Aid for the Auto Industry in the "Lame Duck" Session
Financial Reform Watch is a series of alerts developed for our colleagues needing to keep current on Washington's response to the turmoil in the financial markets.
Wednesday, November 19—PM Report
In another indication of the knock-on effects of the financial crisis, the auto industry's number one supporter in Congress suffered a preliminary defeat today in his effort to retain a powerful House committee chairmanship. House Energy and Commerce Committee Chairman John Dingell (D-MI) failed to get enough Democratic leadership votes today to retain his chairmanship over challenger Rep. Henry Waxman (D-CA). The Democratic Steering Committee, a leadership organization responsible for determining Democratic committee assignments, voted for Waxman by a vote of 25-22. Waxman is one of the most liberal members of Congress and a champion of environmental issues. Many environmental activists believe that Dingell has spent too long protecting the auto industry, which has resulted in a weakened industry that has failed to produce the cleaner, more efficient cars that consumers want.
The good news for Dingell is he gets a do-over with the full Democratic Caucus which is likely to vote tomorrow to accept or reject the steering committee decision. Dingell believes he has enough votes to prevail over Waxman. The two-dozen incoming Democratic freshmen will participate in that vote, and some believe that Waxman, who endorsed Barack Obama in the Democratic primary, will have more sway with the freshman class. Dingell, who endorsed Hillary Clinton, is expected to draw support from politically moderate members and older members, who are committed to preserving the seniority system.
Also worth noting, today the Republican House and Senate leaders picked two of their own to fill out the membership of the TARP Congressional Oversight Panel – Sen. Judd Gregg (R-NH) and Rep. Jeb Hensarling (R-TX). Gregg was instrumental in negotiating the details and passage of the Emergency Economic Stabilization Act. Hensarling chairs the influential Republican Study Group, comprised of the most conservative House members, and played a pivotal role in defeating Treasury Secretary Hank Paulson’s first attempt to pass a financial bailout package. Gregg and Hensarling join New York State Superintendent of Banks Richard Neiman, Harvard University legal professor Elizabeth Warren, and AFL-CIO Associate General Counsel Damon Silvers. The Hensarling appointment was clearly intended to ideologically offset the labor union representative.
In other news, earlier this week Treasury released its term sheet (attached) for private banks to participate in the TARP Capital Purchase Program (CPP). Private banks have until December 8, 2008 to apply. The CPP deadline for publicly held banks was November 14th, and Treasury maintains there will be no exceptions to that deadline.
Tuesday, November 18—PM Report
While the machinery to oversee Treasury's management of the programs under the Emergency Economic Stabilization Act (EESA) has been slow to gear up, there are signs that the pieces are beginning to fall into place. This comes not a moment too soon, as the clamor from the media and from Capitol Hill for more transparency has been building in the past ten days.
On Friday, November 14th, House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) announced they have picked three of the five members of the Congressional Oversight Panel (COP) established by the EESA. The other two members are to be chosen by House Minority Leader John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY). The fact that the Democratic leaders did not coordinate the announcement of appointments with their Republican counterparts makes it clear that the day of bipartisan cooperation on Capitol Hill has not yet dawned.
Speaker Pelosi named New York State Superintendent of Banks Richard Neiman to the panel. He was appointed to serve as New York State’s Superintendent of Banks in March 2007. Prior that, Neiman was President and Chief Executive Officer of TD Bank USA, N.A. He currently serves on the board of the Conference of State Bank Supervisors and chairs the Halt Abusive Lending Transactions Task Force to address the housing and foreclosure crisis. In calling for "mass modifications" to the terms of mortgages in a recent speech to the New York Bankers Association, Neiman said that "unfreezing credit markets is vital, but lasting stability needs a solution that also addresses the origins of the problem: the escalating numbers of American families who are losing their most valuable asset—their homes."
Majority Leader Reid named Elizabeth Warren, the Leo Gottlieb Professor of Law at Harvard University, where her research areas include bankruptcy and commercial law and financially distressed companies. She serves on the FDIC’s Advisory Committee on Economic Inclusion and previously served as Vice President of the American Law Institute and as an advisor to the National Bankruptcy Review Commission. In a New York Times column on November 15, Nobel Laureate Paul Krugman wrote that Warren is an "expert on personal bankruptcy (and) crusader against credit card industry lobbyists."
The Democratic leaders teamed up to name Damon Silvers to the panel. Mr. Silvers currently serves as Associate General Counsel at the AFL-CIO, where he has represented the labor movement before the Securities and Exchange Commission. He assumed his position in 1997. He also chairs the Subcommittee on Concentration and Competition in the Treasury Department’s Advisory Committee on the Auditing Profession and serves on the Treasury Department’s Investor’s Practice Committee of the Presidents’ Working Group on Financial Markets. Silvers' name has surfaced recently as a possible successor to SEC Chairman Christopher Cox, who has announced he will step down from his post when President Bush leaves office.
By appointing a state bank regulator, an academic, and a representative of organized labor, the Democratic leadership has worked to bring a variety of perspectives to the panel—but none that would necessarily be considered a "friend" of the financial services industry.
The COP is required to submit monthly reports to Congress on the Treasury's use of its broad authority under the EESA. There has been no announcement as to when the first report will be forthcoming. The law also requires the COP submit by January 20, 2009, a report that analyzes the effectiveness of the current regulatory structure in overseeing the financial system and protecting consumers and that provides recommendations on improved regulation for market participants that fall outside of the current regulatory structure.
Another milestone in the development of the EESA oversight functions occurred on November 14th, when President Bush announced the nomination of Neil M. Barofsky to be Special Inspector General for the Troubled Asset Relief Program at the Department of the Treasury. He currently serves as an Assistant U.S. Attorney for the Southern District of New York and Chief of the Mortgage Fraud Group. Prior to this, he served as a lead prosecutor in the Southern District's Securities Fraud Unit. Barofsky's nomination must be confirmed by the Senate. That appears likely to occur this week, as the Senate Banking Committee will hold a hearing on Wednesday and is likely to approve the nomination and send it to the floor.
Monday, November 17—AM Report
Fiscal Stimulus and Aid for the Auto Industry in the "Lame Duck" Session
The Senate returns to work today and the House is scheduled to convene on Wednesday. In the past several days, it has become clear that neither significant economic stimulus nor aid to the auto industry is likely to be approved during this "lame duck" session of the 110th Congress. The sticking point appears to be the inability of Democratic leaders to attract sufficient Republican support for either measure.
G20 Summit
The G20 summit on November 15 produced some worthwhile results and set the table for ongoing work in a number of areas.
Perhaps the most interesting outcomes were two that do not necessarily bear directly on the financial crisis, but which speak to underlying issues that need to be addressed going forward. First, to address mounting fears that protectionism may start to creep in to the policies of some countries, the G20 agreed that none of its members would take protectionist steps in the next 12 months. Second, the summiteers agreed to look for ways to re-capitalize the International Monetary Fund (IMF) and to give developing countries more of a role in its governance, thereby reducing the role of Europe.
The leaders agreed that transparency in the markets is important and that monetary and fiscal policy should be used "as appropriate" to stimulate economies while the governments continue to work on re-establishing financial stability.
According to the White House summary of the event:
"Today's Summit achieved five key objectives.
"The leaders:
- Reached a common understanding of the root causes of the global crisis;
- Reviewed actions countries have taken and will take to address the immediate and strengthen growth;
- Agreed on common principles for reforming our financial markets;
- Launched an action plan to implement those principles and asked ministers to develop further specific recommendations that will be reviewed by leaders at a subsequent summit; and
- Reaffirmed their commitment to free market principles."
"The leaders agreed that immediate steps could be taken or considered to restore growth and support emerging market economies by:
- Continuing to take whatever further actions are necessary to stabilize the financial system;
- Recognizing the importance of monetary policy support and using fiscal measures, as appropriate;
- Providing liquidity to help unfreeze credit markets; and
- Ensuring that the International Monetary Fund (IMF), World Bank and other multilateral development banks (MDBs) have sufficient resources to assist developing countries affected by the crisis, as well as provide trade and infrastructure financing."
The group agreed to have it's next meeting on April 30 -- the 101st day of Barack Obama's term as President of the United States."
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Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome. The information contained herein is abridged from legislation, court decisions, and administrative rulings and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.