WASHINGTON -- The first time I voted no on the bill, I said that the $700 billion bailout was a huge amount to spend on a plan that took the wrong approach and was unlikely to solve the problem.
On Monday of that week, it was called the Wall Street bailout, and on Friday, they called it the Emergency Economic Stabilization Act. But either way, the bill was still not the right solution. So, I voted no for a second time.
That second time, of course, the bill passed.
As I reflect on this, I don't see how anyone could think that taking a bill that already was weak and will expose taxpayers to $700 billion more in debt can be improved by adding on another $150 billion. And all of this spending is "unpaid for" -- it will be added directly to the national debt.
In effect, we're mortgaging the future and turning to China and other foreign nations to finance it. We could be putting ourselves and our children in a position where we no longer have effective control over our own country's financial system. They could be in a position to buy our country's best assets, and we won't have a lot of options for preventing it.
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Keep in mind that the national debt has grown by more than $4 trillion during the Bush presidency. It's increased by almost 75 percent to nearly $10 trillion. The bailout bill will probably add billions more, though the president and others say lots of it "will be paid back." I certainly hope so, but I'm not optimistic about it.
Now that the president has signed this massive new spending bill, the secretary of the treasury will be able to begin buying any kind of "bad debt" he thinks should be removed from the books of a variety of private sector firms. His power to make these decisions is virtually unrestrained, and there's no doubt in my mind that one of the things he's going to buy on behalf of you and me is something called a credit default swaps contract.
We have a roughly $60 trillion dollar exposure in the market where they trade these credit default swaps, which most people don't know anything about. I can tell you this bill does absolutely nothing to protect any of the $700 billion in taxpayer money from that kind of bad debt.
You might wonder what a credit default swaps contract is; I certainly did the first time I heard the term. Credit default swaps let lenders such as banks to buy what amounts to insurance that will protect them if the company they're lending to defaults. The number of these contracts in the system has grown at an astonishing rate in recent years, and the nominal amount of debt guaranteed by them has risen from a bit more than $600 billion in 2001 to around $60 trillion this year. That's an increase of a thousand percent in only seven years.
The administration may try to use the $700 billion to buy the worst of the bad debt in the credit default swaps market and get it out of the system in hopes that the entire system won't unravel. But we don't know if this can be done, and we don't have any idea of whether or not it will work. So, we could wind up giving them $700 billion and having it fail anyway, and then we're really in the soup.
In my opinion, these credit default swaps contracts could be the most dangerous things floating around in our financial system, and the way things are set up right now, nobody can tell for sure what those swaps traders are up to.
We need our regulators to be able to see what's going on there. We need a revised system -- something along the lines of what we do in the commodities markets -- to provide transparency and accountability for both buyers and sellers. The bill that passed the House doesn't do that.
The most encouraging thing I heard during the debate was that many in Congress, regardless of how they voted, recognize that we have a lot of work ahead of us if we're going to truly get at the underlying problems we have in our financial system's credit markets.
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When Congress reconvenes, I'll get to work immediately on sorting out the underlying problems that were not addressed in the bailout bill and working with both Republicans and Democrats to overhaul our system in ways that will be effective, protect taxpayers and investors and ensure against a repeat of this fiasco.
Peterson, a Democrat, represents northwestern Minnesota in the U.S. House.
