Kevin Colby: News, culture, political blog

Dear Kevin ,

I voted against the bailout bill earlier this month, because I believe it didn’t guarantee tough oversight, profit-sharing for taxpayers, fair refinancing for homeowners facing foreclosure; and, rules to make sure none of the money ends up back in the pockets of the CEOs who got us in this mess.

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Now, I’m calling for an investigation into the business practices of the major credit rating agencies that gave the stamp of approval to the risky mortgage-backed securities.  Investors trusted in those ratings, and the public deserves to know how these agencies concluded that such investments should receive high ratings.

Additionally, I’m working on clear and strong financial industry regulations, particularly for the credit default swap industry.  Today’s financial crisis results from years of inadequate oversight, and our current regulatory structure is outdated, weak, and has been far too tolerant of excessive risk taking.

In the wake of the bailout, the U.S. Treasury announced it will make $250 billion of the recently enacted $700 billion financial package available to buy stakes in U.S. financial institutions.

In a nutshell, the government announcement means taxpayers are taking a temporary equity ownership stake in some of the country’s most troubled banks.

But if you think that means taxpayers will have a say in running them, think again.  Taxpayers won’t own voting shares in some of the very banks that got the country into the current economic mess.  Thus, they’ll have no direct say.

I’ve asked Treasury Secretary Henry Paulson to make sure of four things.

One, that any shares the government purchases should come with both voting rights.  Mismanagement at some of these banks steered us into this crisis. As long as taxpayers are providing those banks with a capital infusion, they should have a say in bank management and should profit no less than other shareholders.

Two, that the government should insist that banks receiving taxpayer investments limit executive compensation.  At the very least, these limits should include a ban on golden parachutes and eliminate bonuses linked to excessive risk-taking.  These restrictions should apply to at least the top five highly paid executives of the participating banks.

Three, that the government should require banks receiving taxpayer investments to suspend or eliminate shareholder dividends.  These injections should be used exclusively to help banks rebuild their capital bases, not to increase shareholder returns.

And lastly, that the government should insist that banks receiving taxpayer investments refrain from engaging in risky lending practices.  The intent of the capital injections is to provide stability to the financial markets, not to facilitate more of the same, dangerous lending practices that fueled our current crisis.