The “No Bailouts Act” was introduced today by a group of House Democrats led by Rep. Peter DeFazio, D-Ore., in the wake of yesterday’s failed bailout package.
The proposal includes boosting FDIC insurance limits on bank deposits, changing the Securities and Exchange Commission rules on mark-to-market fair value accounting, launching a net worth certificate program, resurrecting the old security transfer tax and introducing a mechanism to stem to the flood of foreclosures, among other items.
Mr. Defazio, who voted against Monday’s bill, said Congress rightly refused to be strong-armed into pushing through bad legislation that is risky to taxpayers.
“The protections in that bill yesterday were nonexistent, in terms of the taxpayers,” he said.
Among the group’s proposals is a security transfer tax, similar to the one used from 1914 to 1966, which helped fund reconstruction projects during the Great Depression.
He estimates this tax, at 0.25%, would raise $150 billion a year.
This way, investors will pay for the bailout “in tiny, tiny increments,” Mr. Defazio said. Also, the group believes changing the SEC’s fair value accounting program would go a long way to easing the credit crunch that banks are facing.
“We don’t have a liquidity crisis — we have a credit crisis right now,” that has to do with the way assets are being valued, said Rep. Marcy Kaptur, D-Ohio.
Fair value, under Statement 157 of the Financial Accounting Standards Board of Norwalk, Conn., requires companies to put current market values on securities in their portfolios even if those securities won't be sold for years.
This “mark-to-market” accounting has come under heavy criticism on Wall Street, as it forced many major banks to take hefty write-downs on securities and derivatives, even though the firms have no plans to sell those securities amid the market's turmoil.
Some critics have further argued that it is difficult to assess the value of many of those securities because of the slowdown in trading of those assets.
“The assets have value, and we need to change that accounting in order to ease the burden,” she said.
In addition, Federal Deposit Insurance Corp. insurance limits on bank accounts would be raised to $250,000 from $100,000, which the backers of the plan say would help eliminate runs on banks.
The two-million-member Service Employees International Union of Washington immediately backed the plan.
“We finally have a plan that will restore confidence in the financial markets without writing a blank check to the same Wall Street banks and CEOs who got us into this mess,” SEIU president Andy Stern said in a statement.