Welch Bids on Bailout

Author: Andrea Glaessner

Vermont Congressman Peter Welch joined 263 of his fellow House representatives Oct. 3 in approving the $700 billion bailout package designed to rescue ailing credit markets. Although the House rejected the bill on Oct. 1, 58 representatives, including Welch, changed their votes on Friday to approve what may become the most expensive government intervention in history.

Hours before the vote, Welch hosted a phone conference to discuss the vote with members of Vermont's press. Despite having come around to vote in favor of the bailout, Welch still expressed only lukewarm enthusiasm for the bill.

"As flawed as this bill is, it's a far superior alternative to doing nothing," said Welch, "It's this bill or no bill, and no bill is an absolute catastrophe."

Citing the negative impact of the credit crunch on Vermont businesses, pension funds, and retirement savings, Welch felt the urgency to pass the bailout immediately in order to bring much needed stability to the markets.

"Are we going to play Russian roulette on the jobs of Americans by voting no?" Welch mused during the phone conference, "Because I do not want to roll the dice and jeopardize the jobs, savings, retirements of people in Vermont."

Over the course of two weeks, the bailout bill swelled in volume from the legendary three-page initial Treasury proposal to the 110-page bill rejected on Oct. 1 to the daunting 450 page closer stuffed to the brim with pork-barrel legislation from hurricane aid to alternative energy funding to unemployment insurance. One reporter asked Welch how he felt about the bill's transformation from "a blank check" to "a Christmas tree." Welch responded, "My personal preference is that we keep bills spare and clean. The Senate added tax provisions that frankly I wish they hadn't, but they also added a few things that help."

Acknowledging a "dramatic improvement" from the three-page Paulson proposal to the Oct. 1 bill, Welch was pleased with the inclusion of oversight, executive pay crackdown, restrictions on the "golden parachute" retirement plans for executives, and had reference to the creation of a stability fund. But the improvements failed to clench Welch's support during the House's initial Oct. 1 vote - Welch was one of the 228 representatives who rejected the Oct. 1 bill.

Ultimately, it was three developments that tipped the balance for Welch to vote in favor of the bill on Friday: raising the ceiling on federal insurance for bank deposits, a change in SEC accounting practices, and a phone call from presidential hopeful Barack Obama.

Many lawmakers, including Welch, cited the Senate's addition of a provision increasing the amount of savings insured by the Federal government to $250,000 per account, from $100,000 as a motivating factor for switching their vote to support the bailout. Alan R. Holmes Professor of Monetary Economics Scott Pardee echoed this sentiment, calling the FDIC provision "one of the brilliant masterworks of this legislation." According to Pardee, the provision will enable banks to start lending earlier on, and will "reduce the possibility that people will start lining up at the banks to pull their money out."

On Wednesday, the SEC announced a change in accounting practices from the "mark-to-value" to "mark-to-market" system. During the phone conference, Welch was quick to assert his personal role in encouraging this development. In a statement released after the conference, Welch reiterated this point.

"The Securities and Exchange Commission, acting on a request by me and several colleagues, revised misguided accounting rules that are putting unnecessary pressure on lending institutions and leading to further instability in the financial industry." According to Welch, the SEC's new accounting practices will lead to a more balanced appraisal of property in housing markets.

Finally, in what came off as an obvious plug for the Democratic presidential candidate, Welch divulged that a phone conversation with Obama hardened his support for the bill. Welch explained that he received call from Obama, who gave him "personal assurance" that as the next president he would fight for a recoupment fund to make certain that the cost of this program would be borne by the financial services community, and not by American taxpayers. Obama also mentioned his support for bankruptcy protection for mortgagees.

In the days leading up to the House's second vote, Vermonters flooded Welch's phone lines and mailbox with concerned comments about the bill and the financial crisis.

"I've been hearing from Vermonters who are rightly furious," Welch alleged, "and I share their fury." Welch went on to explain that Vermont has the second lowest foreclosure rate in country. "Vermonters did not cause this problem; they are caught in the undertow of irresponsible financial institutions on Wall Street."

Reiterating Vermont's relatively minor role in the subprime mortgage drama, Pardee explained that Vermont has been insulated from a lot of the backlash from the mortgage crisis. As indicated by Pardee, the most egregious acts of mortgage abused tended to stem from housing bubbles in Florida and California.

Still, Welch assured reporters that Vermonters were "suffering" from the financial crisis. During the phone conference, Welch described Vermonters as "frustrated" and "fearful". When confronted about hard evidence of the impact on Vermonters, Welch responded that the evidence about the credit crunch "is compelling." "There's evidence from treasury - monthly treasury rates plunged to zero because banks are borrowing from the Fed at record rates," said Welch.

Others insist it is unclear how much the financial crisis has actually affected most Vermonters. At the moment, the impact of the crisis on the average Vermonter according to C.A. Johnson Distinguished Professor of Economics David Colander is "not very much." However, Colander noted, "the potential is there for this to become very serious, and that could affect all Vermonters."

The credit crisis is only one aspect of an incredibly complicated economic situation. Politicians are worried about the impact on their constituents, but as Colander pointed out, "what economists are worried about is the entire economy screeching to a halt."

The impact of the financial crisis on Vermont may be questionable, but Pardee expects that the evidence will become clearer in the months to come. As winter draws near, heating costs will affect Vermonters across the board, and business owners may suffer from disappointing profits during the holiday season. Pardee also suggested increasing "for sale" signs on lawns of Vermont houses and farms. Stock markets plunged Monday morning following the House's passage of the bailout bill, reeling from the weekend shake-up of European banks. Only time will tell if and how America's financial crisis will extend its reach across the Green Mountain state.