Category: Spring 2009 Newswire
Senate Slow to Take up Bill that Would Tax Executive Bonuses
bonusbill
Bangor Daily News
Drew FitzGerald
Boston University Washington News Service
March 26, 2009
WASHINGTON – One week after the House of Representatives rushed to pass legislation imposing heavy taxes on bonuses paid to American International Group executives, Senate leaders are signaling they could take two weeks or more before they address it.
The bill the House passed last week would impose a 90 percent tax on executive bonuses paid by corporations that received more than $5 billion in bailout money. But Senate Majority Leader Harry Reid, D-Nev., said senators might not debate the House bill or a more moderate version from the Senate Finance Committee until late April.
Asked Wednesday about the House bill’s chances, Sen. Arlen Spector, R-Pa., said the bill would be in better shape “if it were on life support.”
Sen. Olympia Snowe, R-Maine, an original sponsor of legislation that would tax executive bonuses, called the Obama administration responsible for the delay.
“The resistance for this legislation emanates from the administration – no question,” Snowe said in an interview. “By all admissions and all accounts that was the case.”
One effort Snowe proposed with Sen. Ron Wyden, D-Ore., in February would have taxed all large bonuses that bailout recipients paid their executives in 2008 at an extra 35 percent. Snowe aides acknowledged the legislation would not have rescinded the AIG bonuses paid this spring, but it would have applied to larger bonuses paid by other firms.
The Snowe-Wyden amendment passed the Senate on a voice vote with little public opposition but vanished after Democrats hammered out the final version of the bill in conference committee. When Congress passed the final bill that arrived on President Barack Obama’s desk, the provision had been completely stripped.
“That had to come from the administration,” Snowe said. “There’s no question about that.”
But Sen. Susan Collins, R-Maine, expressed concerns about the Snow-Wyden legislation during an appearance on “This Week with George Stephanopoulos” Sunday.
“We need to be careful,” Collins said according to a transcript of the program. “The problem with the Senate bill is it is so wide in its scope that it would apply to tens of thousands of employees all across this country who had nothing to do with getting us in this mess.”
Snowe said the Senate proposal would not punish middle-class executives because it would apply only to bonuses of more than $50,000.
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Treasury Secretary Unveils Proposed Financial Rules
OVERHAUL
Norwalk Hour
Tait Militana
Boston University Washington News Service
03/26/09
WASHINGTON – Treasury Secretary Timothy Geithner unveiled a wide-ranging overhaul for regulating the country’s financial system Thursday that could give the government control over financial giants like the American International Group.
The proposals are in reaction to the banking crisis which has threatened the survival of financial institutions and wiped out trillions of dollars in investor wealth.
Geithner said the United States came into the financial crisis without adequate tools to handle it and vast regulatory changes are needed.
“To address this will require comprehensive reform,” Geithner said. “Not modest repairs at the margin, but new rules of the game.”
According to Rep. Jim Himes, D-4, the government must create a new government regulating body to make sure such a crisis never occurs again.
“If there is one thing we’ve learned, it’s that there are plenty of players that are capable of crashing the system,” said Himes of the banking system. “When an activity can crash the system we have a right to monitor it.”
Speaking in front of the House Committee on Financial Services, of which Himes is a member, Geithner outlined broad areas that the regulatory framework will cover. Included in the plan is the establishment of a single federal agency with responsibility for maintaining the stability of large institutions.
The proposed changes would also give the government the power to take over financial companies like AIG as it now has the power to do with insolvent banks.
Designed to weed out unnecessary risks to the country’s financial system, the agency would subject firms deemed to be too large to controls such as tougher capital requirements and greater oversight on borrowing.
Geithner said a single comprehensive regulator also would prevent companies from “cherry picking among competing regulators” as they do under the current system.
“The new rules must be simpler and more effectively enforced,” he said.
The plan, which requires congressional approval, would grant never-before-seen powers to the government, allowing it to more easily influence the financial system.
The administration’s goal with the new authority is to be able to prevent a repeat of the financial crisis surrounding AIG. The furor over the government bail-out of AIG peaked last week after a report that top executives had received $165 million in bonuses. The government plan also would for the first time place regulations on the derivatives market including credit default swaps, which AIG heavily traded driving the firm to near ruin.
Geithner did not specify where these powers would lie, but said the regulations would build on the model set by the Federal Deposit Insurance Corporation.
Several Republican members of the committee had cool responses to Geithner’s proposals. Rep. Scott Garrett of New Jersey said he worried the plan would give the government too much power without achieving its goals.
“The Federal Reserve itself was created to ensure that asset bubbles and panics sort of like we have right now don’t happen,” Garrett said. “But they do. Forgive me if I’m still a skeptic.”
Tuesday Sen. Chris Dodd, D-Conn., suggested the new authority be granted to a regulatory council made up of representatives from the FDIC, Federal Reserve and Treasury. He said such a system would provide the proper checks and balances.
“Overall the plan is consistent with the principles I've laid out,” Dodd said in a statement.
Himes said what department will be granted the regulatory powers is still an open discussion, but he is more concerned how the regulation will be shaped.
“I care more about what it looks like than where it lives,” Himes said.
At the G-20 summit meeting of industrialized nations to take place next week in London, Geithner pledged to build upon reforms in the United States with European partners, saying the country cannot move on by itself.
“We need to recognize that risk does not respect national borders,” he said.
According to Himes, the most important thing is that the new regulator be able to adapt and eliminate unnecessary risks.
“It is critical that the thing be flexible and adaptable, which are not words usually used to describe a regulator,” said Himes.
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Conservatives Rethink Defense Spending Reform as Budget Debate Looms
HERITAGE
The Day
Katie Koch
Boston University Washington News Service
3/26/09
WASHINGTON—The Defense Department must reform how it acquires its weapons and other military goods, a leading conservative group said Thursday. But these reforms, the Heritage Foundation said, should give the military more freedom to pursue new projects, not less.
“The defense acquisition process is probably overregulated, not underregulated,” said Baker Spring, a research fellow at the foundation.
Speaking at a Heritage panel on procurement reform, Spring criticized Congress for its “excessive micromanagement” of the defense budget. He also targeted the military for its “risk-averse mentality,” a result of the “layers of bureaucracy” governing the acquisition process.
Spring said Congress must abandon its “illusory goal of a one-size-fits-all, rules-based acquisition process” and allow the Pentagon more leeway in acquiring and developing new technologies.
“Congress needs to restrain itself and do what is really best for the country instead of balkanizing this issue,” he said.
In the fight to preserve costly defense projects—and in many cases, to shield such projects from extensive oversight—conservatives have often been the military’s closest allies. They have been more inclined to support long-term, expensive defense projects such as the Navy’s Virginia-class submarines, which are contracted through Groton’s Electric Boat Division of General Dynamics Corp.
Yet as defense spending has come under harsher scrutiny in recent months, conservative institutions like Heritage and their Republican counterparts in Congress may be readjusting to the new debate. In the current economic climate, military supporters say, all spending must be justified.
During the Cold War, “it was a dangerous world, but it was pretty easy” to secure funds for defense projects, said Gen. Dennis Reimer, former Army chief of staff, who spoke at the Heritage panel.
“Now we’re in a capabilities-based world, and we’re in an economic crisis,” he said. “We can’t afford to have as inefficient a system as we have today and still get the best bang for our buck.”
In his press conference on Tuesday, President Barack Obama called for a “more disciplined” defense budget. His proposed budget would leave defense spending roughly equivalent to what it was under President George W. Bush after adjusting for inflation.
“Where the savings should come in,” Obama said, “is how do we reform our procurement system so that it keeps America safe and we’re not wasting taxpayer dollars?”
Conservatives, however, worry that the President will ask Congress for less supplemental spending for the wars in Iraq and Afghanistan, which they say will drain the defense budget and cause long-term military projects to suffer.
“It’s really a peacetime budget,” said Mackenzie Eaglen, a senior national security policy analyst at Heritage. “The notion that cuts can be made without a subsequent change in our defense strategy is unwise and risky.”
On Wednesday, Sen. John Cornyn, R-Texas, and 13 other Republican senators sent a letter to the President criticizing his proposed defense budget. The senators warned against allowing the military to go on a weapons “procurement holiday,” which they said happened during the Clinton administration.
“Obama’s budget will decrease the overall defense spending, with cuts likely coming from defense acquisition,” a spokeswoman for Cornyn said.
Secretary of Defense Robert M. Gates, who also served under President George W. Bush, has echoed Obama’s call for defense spending reform.
“Secretary Gates has a much larger mandate [under this administration], and will be tackling these issues,” Eaglen said.
Michael E. O’Hanlon, a senior fellow in policy at the Brookings Institution, said in an interview Thursday afternoon he does not believe that Congress is causing unnecessary problems for military programs.
“The problem is not that good programs get canceled [by Congress], it’s that there may be inefficiencies in the way bureaucracies work that drive up costs,” O’Hanlon said.
He also said that talk of another “procurement holiday” is overblown.
“We can’t afford it in terms of [the military’s] equipment stocks,” he said. “But there may be selective cuts to certain programs.”
At Thursday’s panel, speakers outlined various ways to reform the military’s acquisition programs.
“Congress has a tendency to second guess…and intervene in the acquisition process,” Michael Wynne, former secretary of the Air Force, said.
Therefore, “we need to keep the acquisition criteria simple,” he said. “We need to minimize the kind of criteria that have been fertile ground for protest.”
Spring argued that no reform would be possible without a higher budget to provide for the military’s needs in Iraq and Afghanistan and at home.
“If you don’t have an adequate defense budget, no amount of reform is going to get you the force that you want,” Spring said.
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Dartmouth High Students Visit Capitol to Lobby for Human Rights
DARTMOUTH HIGH
The New Bedford Standard-Times
Cristian Hernandez
Boston University Washington News Service
03/26/09
WASHINGTON—Twelve Dartmouth High School students woke up at the crack of dawn Wednesday to catch a flight to Washington for a whirlwind one-day trip to Capitol Hill. Their mission was to petition government officials to take action in the Darfur-Sudan human rights crisis.
The students, members of the Amnesty International club at Dartmouth High School, were invited by Rep. James McGovern, D-3, to attend a human rights hearing sponsored by the Congressional Human Rights Caucus.
“We want to learn about our government and get the word out there that student groups care about international issues like Darfur,” said Phil Krause, a senior and the club’s vice president.
Students visited the Amnesty International offices in Washington and the office of Sen. John Kerry, D-Mass., where they met with Dylan Gottfried, Kerry’s aide on the Senate Foreign Relations Committee.
“Today’s trip was really cool,” sophomore Chloe Gilligan said. “This trip was different. We talked to the Amnesty International people about how they became involved in human aid work. John Kerry’s office aide was well informed. He knew what he was talking about.”
Rep. McGovern, the co-chair of the Congressional Human Rights Caucus, invited the students to sit in on the hearing, which concerned the dangers facing journalists and human rights advocates in Colombia.
“We admire that you are here. It’s an inspiration,” McGovern said in acknowledging the students during the hearing. “I’m glad they are going to get a chance to learn more about the issues in Colombia.”
“It was completely shocking and moving. I had no idea those things were happening in Colombia,” junior Chloe Bernert said.
Bernert, like the other students, is interested in international relations and said she hopes to return to Washington as a college student at Georgetown University.
“Darfur has been one of my main focuses for a very long time,” Bernert said. “The younger you learn about issues the better; if you know what’s going on you will be more willing to try to enact change.”
Amnesty International, which campaigns for human rights, has 2.2 million members worldwide. The club at Dartmouth High School was formed in 2003, shortly after the start of the war with Iraq.
“Students were upset, and they wanted to get involved,” said Ben Kahrl, social studies department chairman and adviser to the club. “I told them they could start an Amnesty International club.”
The club has blossomed from 8 members to about 60, Kahrl said. Each school year students pick two international human rights issues to focus on. This year they are working to raise awareness of the Darfur-Sudan crisis and discrimination against women.
During the school year they meet twice a month to write petition letters and organize events designed to educate the student body about human rights issues, the students said.
Club members each year make two trips to Washington to lobby the government on the issues they are working on.
“It’s important to teach kids how to exercise their rights to petition. Almost in no other country in the world do people have as much access to people in power,” Kahrl said. “It’s important for them to sense that they have a voice, a powerful voice. Just the fact that we can come down here and see the federal government is extraordinary.”
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Obama Promotes Budget, Lobbies Democratic Senators
NY MEETING
WENY-TV
Lindsay Perna
Boston University Washington News Service
March 25, 2009
WASHINGTON – President Obama played lobbyist on Capitol Hill Wednesday, outlining for Democratic senators his priorities in his budget.
Obama asked the senators to preserve education, health care, energy and middle-class tax relief as they strip down the hefty budget, according to Senate Majority Leader Harry Reid (D-Nev.). He said the Senate would vote on the budget next week.
After the meeting, senators streamed through the hallways of the Senate side of the Capitol discussing major slashes to Obama's $3.6 trillion budgetary blueprint.
Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said the President understood immediately that Conrad “would have to make adjustments” to the budget.
“I know it's a new concept to insist that things be paid for,” Conrad said. “I make no apologies—we have to pay for things.”
Conrad said he would extend all middle-class tax cuts—though the costs would have to be offset in a long-term deficit.
Overall discretionary spending has only increased by 5.3 percent in his version of the budget, Conrad said.
“We’re going to sink or swim together,” Sen. Charles Schumer, D-N.Y., said after exiting the Mansfield Room where senators met with Obama.
Schumer said there was broad support for Obama’s requests to Congress.
The New York senior senator said Making Work Pay, a tax cut for working families in Obama’s budget, is important.
“Everyone has to give a little bit,” he said.
As the members-only elevators shut, Schumer emphasized that “it was a very friendly meeting.”
The junior senator for New York, Kirsten Gillibrand, exited the meeting without answering questions.
Lingering after the Democratic senators dispersed, Sen. Arlen Specter (R-Pa..) commented on whether he thinks the bill to recoup executive bonuses would go to a vote in the Senate before the congressional recess that starts April 6.
“I doubt it,” Specter said. “If it was on life support, it would be healthier.”
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What Exactly Are The Perks for Members of Congress?
PERKS
New Hampshire Union Leader
Jillian Jorgensen
Boston University Washington News Service
March 24, 2009
WASHINGTON—As Congress attempts to kick-start the struggling economy and scrutinizes the pay and bonuses of business executives, many New Hampshire residents may be wondering: How much money do their representatives in Washington make? And what kind of perks come along with their jobs?
Senators and members of the House of Representatives have fewer perks than in the past, but things like prime parking at the airport and on Capitol Hill and free artwork for their offices still sweeten their salaries. But some formerly famous perks, like free ice delivery to congressional offices, have been eliminated over the last 20 years. Rules about accepting gifts and trips from lobbyists and free rides on corporate jets also have been tightened significantly.
All four members of the New Hampshire delegation pull in the same yearly wage: $174,000. All members of Congress get that same wage except for the majority and minority leaders in the Senate and House, who earn $193,400, and the speaker of the House, who has the top pay at $223,500.
“Right now, most members of Congress, on the pay they receive, which is very generous, have to maintain two homes, at least two places to live, one in your district and one down here. And that gets pretty expensive, but you don’t get to deduct it,” Sen. Judd Gregg, R-N.H., said.
Congressional compensation does not stop at their salaries. Members of Congress have plum health insurance plans, safe pensions and big budgets. Senate offices can be sweeping suites, with high ceilings, multiple rooms and even working fire places.
But Gregg said that most of the perks that raised the ire of taxpayers have been eliminated.
“There’s been a significant change in the area that you might call perks in that most of them have been eliminated, to the extent that they existed, over the years,” Gregg, who started in the House in 1981, said. “There are issues that are still out there I presume; I
can’t think of any significant ones. You know, things like the traditional issues everyone used to hear about, meals, and all that sort of stuff, that was an issue, and those have all been eliminated.”
While many small businesses have trouble providing health insurance to their employees because of high costs, members of Congress have access to the health benefits available to all federal employees.
The plan allows federal employees to choose the level and type (fee-for-service or HMO) of health insurance they want for themselves and their families. The government pays up to 75 percent of a member of Congress’s premium, according to the Office of Personnel
Management.
Rep. Paul Hodes, D-N.H., thinks that every American should be able to buy into the plan “to ensure they can have the same exact insurance as members of Congress,” said Mark Bergman, Hodes’ spokesman. U.S. Rep. Carol Shea-Porter, D-N.H., uses her husband’s health insurance, but pays for dental and vision supplements, her spokeswoman Jamie Radice said.
The plan is not all it’s cracked up to be, said former U.S. Rep. Charles Bass, who is now on the board of trustees of the Republican Main Street Partnership.
“To be honest with you, my health care plan right now at the Republican Main Street Partnership is cheaper than the federal plan, and the coverage is better,” Bass said.
While many pensions and 401(k)s have been decimated by plummeting stock prices or failing investment banks, members of Congress will receive generous pensions for their government service under the Federal Employees’ Retirement System, available to all federal employees. Gregg is the only member from New Hampshire who has served
in the federal government long enough to be vested in the pension plan.
Pensions are based on an average of a member’s three highest levels of pay in Congress, their length of congressional service up to 20 years, and any other government service.
Because Gregg, who has said he plans to retire from the Senate in January 2011, began his service in the House of Representatives in 1981 under the old Civil Service Retirement System, and served in the federal government non-continuously, it is difficult to calculate how much his pension will be worth. But Pete Sepp, vice president for policy and communications at the National Taxpayers Union, estimates that Gregg will receive around $55,000 a year.
When a member of the delegation needs to hop a flight back to New Hampshire for one of the weeks Congress is off, the government foots the bill – as long as it’s for business.
“That can become tricky,” Bass said. “I was allowed to fly to Boston or Manchester, but I was not allowed to fly to Providence to get to New Hampshire.”
Members can also use campaign money to travel to areas out of their district, as well as to pay for other expenses.
They also get to avoid one of the biggest airport hassles: finding and paying for a parking spot.
Gregg, Shaheen, Hodes and Shea-Porter, along with their congressional colleagues, Supreme Court justices and the diplomatic corps, can park for free at Ronald Reagan Washington National Airport and Dulles International Airport, according to Tara Hamilton, spokeswoman for the Metropolitan Washington Airports Authority.
They can park in special spots and lots reserved for them, or in any spot in the lots other customers pay to park in, including hourly lots, Hamilton said.
Parking costs as much as $36 a day in the lots that are closest to the terminals at Reagan National, and $12 a day in the economy lot. At Dulles, the “valet” lot in front of the terminal will cost $30 for the first day and $19 for each additional day, while the economy lot costs $10 a day.
Dulles International Airport has 100 spaces reserved for the members of Congress, justices and diplomats out of 24,069 total parking spaces. Reagan National Airport has 80 designated spaces out of approximately 7,500 total parking spaces.
Bass said many members of Congress get dropped off at the airport by staffers, and said he usually took the Metro train to Reagan National Airport.
It is also free for members of Congress to park on Capitol Hill, where members can park in garages at the Senate and House office buildings. The buildings are all attached underground to the Capitol, and if a member is a in a rush he or she (and staff and members of the press) can take the Capitol’s free tram to and from their office buildings.
Some perks have more to do with convenience than money. Members of Congress and their staffers only have to go to the basement of their office buildings to find banks, barber shops, post offices and even shoe shines – and all at a reasonable price.
Members of the House also can pay a “nominal” monthly fee to work out at the Wellness Center reserved for members and former members only (except those who have become lobbyists, who are not allowed inside), said Dave Helfert, a spokesman for Rep. Neil Abercrombie, D-Hawaii, head of the House gym committee.
Neither Hodes nor Shea-Porter uses the gym, according to their offices, but Gregg does pay for a membership at the Senate gym.
Visits to the Smithsonian Institution museums are free to everyone, but for Congress, they can serve as trips to pick out some new decor: some members can display decorative items from the collections in their offices.
The Smithsonian only lends to members with Capitol offices, usually reserved for the congressional leadership, because the Senate and House curators can protect the artwork there, said Tim Nolan, in the Smithsonian’s Office of Government Relations.
So if a member of the New Hampshire delegation is chosen to be a party whip or minority leader, can he or she display some of the Smithsonian’s dinosaur bones?
“It just depends on what they ask for and what our museums can comply with,” Nolan said.
But reform of the federal pay, retirement structure and ethics rules have stripped Congress of some of the cushier perks of the past, leaving them nearer to the level of other federal employees.
“Over the years, the compensation structure for members of Congress has been made to differentiate very, very little from that of the person working in the post office in Peterborough, N.H.,” Bass said.
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Gregg Says Republicans Will Propose Amendments to Obama’s Budget
GOP Budget
New Hampshire Union Leader
Aoife Connors
Boston University Washington News Service
March 24, 2009
WASHINGTON – President Obama’s $3.6 trillion budget for 2010 will change the course of the nation in a fundamental way over an extended period of time, Sen. Judd Gregg, R-N.H, said Tuesday, as he led a press conference held by the Republican members of the Senate Budget Committee.
The biggest problem with the budget, Gregg said, is that Obama “doesn’t pay for it, even though he significantly raises taxes.”
The budget contains the largest tax increase ever, “yet those tax dollars are not used to essentially close the gap and make the budget more affordable, make spending more affordable, reduce the deficit and reduce the debt,” Gregg said.
Republicans say the budget will explode the size of government and leave the country with a debt that will be passed on to future generations. Gregg said the president has showed us that the debt will double in five years and triple in ten years. “That is an incredible statistic,” he said.
He added, “Think of the implications of that to a country, tripling the debt over 10 years that essentially increases the government debt by more than all of our budgets, all the debt ever put on the American people, from George Washington to George W. Bush.”
Gregg said it should be a serious concern for the nation that the international community, including the Chinese Central Bank, is “questioning the value of our dollar and questioning the stability of our debt, the worthiness of our debt.”
Gregg said if Obama wants to dramatically expand government spending in the next 10 years, he needs to figure out a way to pay for it.
Speaking about Obama’s initiatives on health care, energy and education in his budget, Gregg said, “I have a difference of opinion on a number of these issues and I agree with him on some other issues.”
Gregg said the Republicans intend to propose amendments to the budget that would “limit the rate of growth of government on the discretionary side, on the entitlements side,” and bring down the debt and bring down the deficit.
“We’re going to come forward with a whole series of amendments which essentially will construct what would be a budget but will be not be a formal budget on the floor,” Gregg added.
He concluded by saying that what the president’s budget is passing onto our kids “is a country they can’t afford.”
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Dodd Calls for Regulatory Council to Prevent Another AIG
REFORM
Norwalk Hour
Tait Militana
Boston University Washington News Service
03/24/09
WASHINGTON – As fury over American International Group bonus payments continued to boil around him, Sen. Chris Dodd, D-Conn., tried to push forward Tuesday on plans to overhaul the nation’s banking system, calling on lawmakers to consider a council of federal regulators that would oversee risk and end the concept of “too big to fail.”
Departing from his suggestion last week that the Federal Deposit Insurance Corp. should regulate systemic risk, Dodd said Tuesday that a council representing the Federal Reserve, the Treasury Department and the FDIC, among others, would provide the needed financial oversight without burdening one department with all of the responsibilities.
Sen. Susan Collins, R-Maine, introduced a bill last week that also proposed a federal regulatory council.
Dodd said placing a risk regulator within a single government agency might consolidate too much power in one place.
“I just don’t like the idea of the systemic risk regulator sort of talking to itself,” he said.
In a hearing at the Capitol, the Senate Committee on Banking, Housing and Urban Affairs, of which Dodd is chairman, continued its discussion with bankers on how to regulate financial giants whose failure would threaten the stability of the entire financial system. The panel met with insurance industry leaders on similar topics last week.
Dodd said any new regulator should look to community banks when creating policy because many of them have been able to weather the economic crisis.
“We must recognize that not all banks are responsible for this crisis,” he said. “Small-bank lending might well help lead the way out of it.”
William Attridge, president of the Connecticut River Community Bank of Wethersfield, said it was important to have several agencies checking each other on financial regulation.
“Congress should not establish a single, monolithic regulator for the financial system,” he said.
But not every witness agreed that additional federal regulation was a good idea. Christopher Whalen, managing director of Los Angeles-based Institutional Risk Analytics, said regulation should include state as well as federal agencies.
There is no good way for the federal government to oversee all aspects of financial risk, Whalen said. “There is no God’s-eye view.”
Throughout the hearing, AIG never strayed far from the conversation.
Whalen said an important part of eliminating excessive risk is eliminating the credit default swaps that led to AIG’s near collapse. He took issue with the argument that AIG and other financial giants were too big to let them fail, saying that letting AIG fail would not have ended the world but it would have eliminated the credit default swaps.
“I pray to God we find the courage to put that company out of its misery and into bankruptcy. where it should have been six months ago,” Whalen said.
According to Dodd, part of what led to the near failure of AIG and the economic crisis in general was a perception that protecting the consumer stifled business. He said future regulation must reverse that trend.
“We cannot afford to consider a so-called systemic risk regulator without also considering how we can better protect the consumer,” Dodd said.
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Small-Business Owners ask Congress for Help in Credit Crunch
SMALLBIZ
New Hampshire Union Leader
Jillian Jorgensen
Boston University Washington News Service
March 19, 2009
WASHINGTON—Mark Lane knows how to run a small business. He has run Coed Sportswear Inc., an imprinted apparel company in Newfields that supplies T-shirts to retailers, for 19 years, starting it just after graduating from business school. In 1995, President Bill Clinton presented him with the national Small Business Administration’s Young Entrepreneur of the Year Award in the White House Rose Garden.
But Thursday, Lane, who lives in Hampton Falls, returned to Washington to tell Congress he can no longer get credit to run his business.
“In 19 years of business, we never missed a bank payment, and yet we’re considered a bad loan,” Lane told the Senate Committee on Small Business and Entrepreneurship during a hearing on how the credit crunch has affected lending to small businesses.
“Mark, I think, exemplifies the true entrepreneurial spirit that we’re so proud of in New Hampshire,” said Sen. Jeanne Shaheen, D-N.H., a member of the committee. “Unfortunately, he’s experiencing the challenges that too many small businesses are experiencing, which is the difficulty in getting access to credit.”
Shaheen said 94 percent of all businesses in New Hampshire are small business.
Coed Sportswear and its sister company, Printed Matter, Inc., have not turned a profit in the last two years, which Lane said is directly connected to the economic downturn.
“The last two years have been a struggle for both companies,” he told the committee. “We have seen retailers consolidating, retailers going out of business, and we’ve seen, just in general, retailers generally buying less products. Our sales over the last two years have fallen almost 40 percent.”
Despite laying off 35 of the company’s 80 employees in April and suspending the company’s 401(k) matching program over the summer, in August the company’s bank froze the $1 million line of credit for Coed and the $50,000 line of credit for Printed Matter and asked Lane to find a new bank.
Lane’s bank has extended him credit while he searches for a new lender, but finding a new source of credit has been virtually impossible, he said. Banks are “only willing to look backwards and not forwards,” Lane said, lending only to companies that have been profitable for at least six months.
Coed, while unprofitable for all of 2008, was actually profitable for the last half of the year, Lane said. But the business is seasonal, so there was not a profit in November or December, he said.
Instead of seeking the full $1 million line of credit for Coed, he has sought only to move the $50,000 line of credit for Printed Matter to a new bank.
“If I cannot secure a $50,000 loan, a line of credit, that is more than well-secured, how is it that any small business that is struggling to make money in this economy will ever receive funding to move forward?” he asked.
Senators and witnesses expressed frustration at the discrepancy between the testimony of banks, who say they are lending or are ready to lend, and small-business owners, who say they cannot access credit.
“What I’ve heard from community banks in New Hampshire is that they have money to lend and they’re ready to do that. And yet what I’ve heard from small-business owners like Mark is that they can’t get credit. So, there’s clearly a contradiction here, and something’s not functioning as it should,” Shaheen said in an interview after the hearing.
Lane said his business also has struggled to provide health insurance to its employees. He said the company took pride in paying 100 percent of an employee’s premium, but over the past year, he has had to ask his employees to pay more.
In February, health-care insurance costs rose by 45 percent, forcing Lane to switch to a plan with even higher employee payment and fewer benefits.
“The plan went from what I considered a very good health care plan to what now I consider almost a disaster plan,” he said. “And that’s just hard for the employees to take.”
“That’s why we’ve got to do something about health care,” Shaheen said, “and part of the discussion is around addressing cost.”
Despite the setbacks of the last two years, Lane said he was still optimistic about the future of his business.
“Coming down here, my expectation was to tell my story, which I felt like I was able to do. To tell it to the people that can make a difference, which is what I felt like I did. And I’ve gotten a lot out of it,” he said.
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Financial Overhaul Moves Forward as AID Anger Continues
AIG
Norwalk Hour
Tait Militana
Boston University Washington News Service
3/19/09
WASHINGTON – In the face of outrage surrounding his role in legislation that allowed AIG to dole out millions of dollars in executive bonuses last weekend, Sen. Chris Dodd, D-Conn., moved forward Thursday on reforms to the country’s banking system, calling for federal oversight so never again will an institution be “too big to fail.”
Dodd said the Federal Reserve may have too many regulatory responsibilities to handle the addition of a systemic regulator to weed out institutions whose failure could cause larger damages to the financial system. Instead, he suggested the authority lie with the Federal Deposit Insurance Company, a government institution that backs deposits in member banks.
“If the events of this week have taught us anything, it is that the unwinding of these institutions can sap both public dollars and public confidence,” said Dodd.
In a hearing at the Capitol, the Senate Committee on Banking, Housing and Urban Affairs, of which Dodd is chairman, heard testimony from industry leaders seeking to reinvent the financial regulatory system. All seven witnesses said additional oversight of the financial industry is necessary though several differed in their opinion on how it should be done.
Joseph Smith, North Carolina commissioner of banks, said rather than having a purely federal regulator the authority should be split between state and federal supervision because it will provide more checks and balances.
“An appropriately coordinated system of state and federal supervision and regulation will promote a more effective system of financial regulation and a more diverse, stable and responsive system,” Smith said.
Opponents argued this may allow too many cracks for large, diverse corporations such as AIG to slip through without adequate regulation.
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