By Robert Barron Staff Writer
The proposed $700 billion federal bailout of financial institutions will address a national problem that has to be confronted, said U.S. Rep. Frank Lucas.
If not, the alternatives are too severe, he said.
“The property boom on the East and West coasts became an investment bubble that has now burst,” Lucas said.
Many real estate mortgages that were in the hands of banks, insurance companies, pension funds, private investors are now worth dramatically less than they were originally. That has set off the crisis in financial institutions, said Lucas, a Republican who represents Oklahoma’s 3rd Congressional District.
“Basically, we’ve seen liquidity within the market. The flow of capital money came almost to a stop,” he said. “That’s endangering the entire financial system of the U.S. and the world.”
U.S. Treasury and the Federal Reserve board have injected hundreds of billions of dollars into markets, taken control of Fannie Mae and Freddie Mac mortgage companies, forced the sale of one of the biggest investment banks and allowed another to go bankrupt, but that still has not stopped the problem. Lucas said the proposal is to buy $700 billion in mortgages at market value, which is substantially decreased from their original value, and hold those assets until they can be safely put back into the system. That will accomplish two purposes, Lucas said: taking the mortgages off the market and injecting capital into many financial institutions.
“But, just like so many times the devil is in the details,” he said.
Lucas has some questions before he definitely decides what action he will take. He wants to know if the bailout will work. He wants to know if it will stabilize the financial system and get credit moving again. He also wants to know how many extra requirements Democrats will place in the legislation.
“I’ve heard everything from limiting executive pay to allowing unions to have seats on boards, to the government have an equity position,” he said.
He is inclined to support the legislation if it will work because he does not want the problems seen on the coasts to spread to Oklahoma. He is waiting to see what the final bill looks like, but said he is “very cautious.”
“These are the toughest times for American financial situations since the 1930s,” he said.
Why should voters trust the bailout? The financial services industry is so intertwined, Lucas said, if a majority of institutions fail on the East or West coasts, the ripple effect will make a difference to everyone with a credit card. If the situation gets out of hand, he said, then farmers, oil producers and hometown businesses may not get the credit they need to do business.
“We’re in an economy that operates on short-term credit. Liquidity is important in agriculture, energy and main street. We need a clean, straightforward bill, and I don’t know if we will get it or not. If Congress can’t function and markets lose confidence we may go back into that roller-coaster process,” Lucas said.