The Main Street Rescue Plan

Mandate that the SEC:

• Suspend its “mark-to-market” accounting regulations that are causing the write-down of bank assets to fire-sale prices, and thereby contracting the supply of available investment capital.
• Tightly restrict short sales of financial stocks.

Mandate that the FDIC:

• Declare a national emergency during which time the FDIC will back depositors and general creditors of banks that fail and resolve those collapses in a way that does not cost depositors, such as selling deposits and loans of the failed institution to another institution.
• Reconstitute the FDIC’s “net worth certificate” (NWC) program that Congress created in the 1980s for the savings and loan crisis of that era. The NWC required no federal subsidy or cash outlay. Under the NWC, the FDIC bought subordinated debentures in the bank and issued FDIC notes to the bank, with the interest being the exact same on both instruments. Under this program, the FDIC assesses the financial condition of banks and shores up weak ones that can survive if given time to resolve their problems and merges/liquidates those too weak for the NWC program. Under the NWC program, the FDIC will provide strict supervision of participating banks, including the employment of key personnel and their compensation, until the crisis has passed. Again, no federal subsidies or outlays are required.
• Declare a 120-day moratorium on payment of dividends by banks. Executives of banks that need capital often worry that failing to pay dividends is a sign of financial instability. A temporary ban across-the-board will end fears and give FDIC time to strengthen banks’ capital base.
• Expand FDIC insurance coverage to other financial institutions, including hedge funds, placed under federal regulation.

• Declare a 120-day moratorium on mortgage foreclosures. This will (a) keep families in their homes while components of the broader plan are put in place and the real economy is revived; (b) better ensure that the property does not fall into disrepair; and (c) reduce the decline in housing values created by unoccupied, foreclosed homes.
• Devise a post-moratorium program to do work out plans for owner-occupied homes, including federal cash subsidies for owners that can pay for their homes if given time to financially survive this crisis.
• Amend federal law so that federal bankruptcy judges are able to modify the terms of mortgages of homeowners in bankruptcy and thus give them more time to work through their financial problems and keep their homes.

• Whenever the government makes a loan or an equity investment in a distressed financial institution, such as the AIG deal, the public gets a share of any future recovery profits.
• Create a true “Social Security Lockbox” for the warrants and equity the federal government acquires as part of this financial rescue. The goal is not long-term federal ownership, but to assist these organizations in returning to a sound operation and then make a prudent sale of the public equity.
• Restrict the investment of those funds to AAA-rated state and local infrastructure bonds, which provide safe, long-term investments that will stimulate the real economy, create new jobs, and fiscally strengthen the Social Security System.

• Create an independent agency/board to oversee and manage the non-FDIC/SEC portions of the Rescue Plan and report to Congress on a regular basis. The Board would consist of:
• Secretary of Treasury (Chair).
• Chairman of the Federal Reserve Board,
• Chairman of the FDIC,
• Chairman of the SEC,
• Comptroller General of the United States,
• One appointee by each of the Majority and Minority Leaders of the House of Representatives and the U.S. Senate.
• Create a new Joint Committee of Congress to oversee the plan and provide recommendations to Congress. The new Joint Committee would consist of representatives from all standing committees with partial jurisdiction for resolving this financial crisis. The goal is to involve all relevant committees in this rescue plan.

• The mission of this unit is to investigate any criminal acts that led to this crisis, hold the guilty accountable, and disgorge assets from individuals and institutions found guilty.
• The head of the Office will be an experienced, non-political career prosecutor appointed by the President and confirmed by the U.S. Senate.
• The Congress will provide sufficient funds to staff the Office with qualified attorneys and the necessary support staff of accountants and investigators.

• The goal is to restore prudence and accountability to the U.S. financial system through appropriate regulation.
• Oversight of the financial rescue.