The Financial Crisis Has Devestated America’s States, Cities, and Towns (Rep. Anna Eshoo)

On September 15, 2008 — after 150 years of continuous operation — Lehman Brothers declared bankruptcy.  The Lehman bankruptcy was the largest in U.S. history, with nearly $700 billion in reported debt, and it is described as a triggering event for the resulting international financial crisis.  Following the collapse of Lehman, the Executive and Legislative branches of our government responded rapidly and aggressively in order to prevent any further failures of other major institutions by adopting the Emergency Economic Stabilization Act of 2008.

The Act, signed into law by President Bush on October 3, 2008, created the Troubled Assets Relief Program (“TARP”) and gave the Secretary of the Treasury both the authority and the responsibility to provide financial assistance to institutions through the purchase of “troubled assets,” on such terms and conditions as may be appropriate. 

In exercising this authority, the Secretary is required to take a number of factors into consideration, including “the need to ensure stability for United States public instrumentalities, such as counties and cities that may have suffered significant increased costs or losses in the current market turmoil”.  I proposed this language and it was added to the bill with the support and assistance of Chairman Frank and his staff, as well as Speaker Pelosi.

Since adoption of the Act, the Treasury Secretary committed to provide financial assistance in the approximate amount of $590 billion to more than 535 financial institutions.  This assistance includes approximately $45 billion to the Bank of America, $50 billion to Citigroup, $40 billion to insurance giant AIG and $24.8 billion to automakers. To date, however, no assistance under the Act has been provided to any United States public instrumentality.  It’s been said that some banks are too big to fail.  It can also be said that counties, school districts and cities are too small to be noticed.  Their losses represent ¼ of 1% of TARP funding.

The fact that TARP was intended to, and should, assist local public instrumentalities is clear.  This fact was further confirmed on January 14, 2009, when Chairman Frank, in response to my questions on the Floor of the House of Representatives, reinforced that the Act is intended to provide financial assistance to local governmental entities which were significantly impacted by the Lehman bankruptcy and that the Act expressly provides authority for the Secretary of the Treasury to provide relief to municipalities.

In fact, I think Chairman Frank said it best when he indicated that it was important “not simply to confirm that the authority is there but to say that we expect it to be used and to demand that if it is not used, we get a written explanation as to why not.”

The Treasury’s decision to let Lehman fail is causing catastrophic losses to many localities, resulting in job losses, termination of ongoing construction projects, and elimination or reduction in critical services.  Hospitals are reducing services and staff.  Schools are laying off teachers.  Police and fire departments are reducing patrols and limiting services.

And what “wrongs” are these school districts, counties and cities “guilty” of?  Investing in highly rated instruments in Lehman Brothers.

If we want our national economy to rebound, our local economies cannot be left behind.  This is not just a California problem.  It includes public entities from Florida, Colorado, Arizona, Michigan, Massachusetts, Missouri, Oregon and Washington State.  And the list goes on.

Local public entities should be able to recover some of the dollars lost.  To date, Lehman Brothers is the only financial institution that was allowed to collapse and our schools, public safety, and social services will suffer if we don’t return these dollars back to our local governments.

We have a law which is clear.
We have a case that is clear.

What we need is clear, decisive action to right this wrong.  Local taxpayers and communities should not have to tolerate losing their most basic services because Lehman Brothers was allowed to go down.