Tester warns Treasury Secretary of ‘dangerous economic policy’
Senator concerned by banks using bailout money to buy other banks
(WASHINGTON, D.C) – Senator Jon Tester wants to know why the
U.S. Treasury Department is allowing the nation's largest banks to purchase
other banks using money meant to spur the economy.
In a letter sent today to Treasury Secretary Henry Paulson,
Tester said allowing those purchases is "dangerous economic policy."
The recently passed Wall Street bailout bill, which Tester
voted against, allows the government to purchase $250 billion in stock in
federally regulated banks. The program was designed to boost the economy
by ensuring that banks can continue to make loans.
However, many banks announced plans to instead use those
taxpayer-funded assets to purchase other banks.
"While there may be some disagreement on the best approach
to improve the economy, I am fairly certain that Congress did not grant you the
authority… to push for the dangerous consolidation in the financial sector,"
In his letter, Tester also called "unacceptable" plans by
American Insurance Group (AIG) to use more than $500 million of its bailout
money to pay top executives.
Tester noted that AIG now owes American taxpayers $152
billion. Tester voted against the bailout bill in part because he did not
believe the measure did enough to limit pay for executives of failed companies.
Tester is a member of the Senate Banking Committee.
His letter to Paulson follows.
November 17, 2008
The Honorable Henry M. Paulson, Jr.
Secretary of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Dear Secretary Paulson:
I am greatly disturbed to learn that many of the banks that
have acquired billions of dollars from the Treasury's Capital Purchase Program
are considering use of those funds to acquire other financial institutions.
The Capital Purchase Program,
which will purchase up to $250 billion in preferred stock in federally
regulated banks and thrifts, was authorized by Congress through the Emergency
Economic Stabilization Act of 2008 (EESA). The Capital Purchase Program was
meant to ensure that our commercial lenders would continue to make loans,
ensuring that consumers, small businesses and municipalities among others would
have necessary access to capital.
I voted against the EESA because I was not convinced that it
would help struggling families, farmers, ranchers or small businesses in
Montana during this economic crisis. Despite my vote of opposition, I am
committed to working with all available government resources to limit the
spread of economic hardship. The Treasury Department, which has full authority
over the Capital Purchase Program, needs to immediately work to focus the
resources of that program to more legitimate means than bank consolidation.
During a hearing on September 23, when you appeared before
the Senate Banking Committee to make the case for the legislation that would
become EESA, I clearly laid out my position to you and Federal Reserve Chairman
Bernanke on the fears of continued consolidation in the commercial and
investment banking sectors. Specifically, I warned that consolidation in this climate
would pose a greater chance of systemic risk to the overall economy. Chairman
Bernanke replied, "The too-big-to-fail problem is a very serious problem but I
think that we need to get through this problem and work to mitigate that
problem in the future."
Continuing the ad hoc approach of regulatory
decisions that you orchestrated during August and September is no longer
sufficient. We need to respond to the Federal Reserve Chairman's and my
concerns of systemic risk. Using a government program to allow our nation's
largest banks to get bigger is dangerous economic policy.
I hear weekly from the people who work at the mills, timber
companies, mining operations, energy companies and the other small businesses
in Montana that are the backbone of our economy of the difficulty they are
having in tapping the capital markets. It is critical that we urge banks and
thrifts to continue allowing their longtime business partners and customers to
have access to legitimate business loans.
I am determined to work towards easing the economic
concerns for families across Montana. While there may be some disagreement on
the best approach to improve the economy, I am fairly certain that Congress did
not grant you the authority included in the EESA to push for the dangerous
consolidation in the financial sector.
On a related note, the issue of executive compensation for
participating institutions continues to concern me. While it seems that the
Treasury Department is obeying the letter of the law with limits on golden parachutes
and executive pay, recent reports regarding AIG indicate you are clearly
overlooking the spirit and intent of the law. It is unacceptable for AIG to pay
more than $500 million in deferred compensation to some of its top employees
while the American taxpayer is now owed $152 billion from the company.
In your limited time left at Treasury, I want to work with
you to find ways to help relieve the credit crunch in small towns across
America. I believe this can be done by not only looking to work with the
largest financial institutions but also the community banks and thrifts which
are essential to the financial well being of small towns.