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Mahoney Discusses Bailout With Locals

Jasmina Meyer/Highlands Today

From left: Executive Director of the Sebring Regional Airport Mike Willingham, Executive Assistant Beverly Glarner, and John Rydecki, owner of JR's Runway Cafe, listen as Congressman Tim Mahoney speaks about the current economic crisis and how Congress is handling it on Wednesday at the Sebring Regional Airport.

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By GARY PINNELL

Highlands Today

Published: October 9, 2008

The $700 billion financial rescue package did nothing to avert stock market meltdowns and perhaps a worldwide recession, U.S. Rep. Tim Mahoney told business leaders Wednesday in Sebring and Avon Park.

However, it was necessary to stabilize the housing market and retirement accounts.

Avon Park city councilman George Hall, Sebring Airport finance director Marcia Lee, and management consultant Renee Bennett took Congress to task for bailing out the likes of American Insurance Group and ordinary Americans who borrowed far too much money for houses.

The bailout package will allow mortgage lenders to bargain with borrowers who can pay a portion of the mortgages and remain in their homes.

"We're rewarding them by allowing them to stay in that position," said Hall. "That's not the way this economy is set up." He took risks in his home and businesses, and if he loses, he'll have no safety net, Hall pointed out.

Mahoney, D-Palm Beach Gardens, stood his ground, saying most borrowers - even if they were loaned $335,000 to buy a Palm Beach home on a $45,000 annual income - were just trying to provide homes for their families.

"Eighty to 85 percent of those people are going to pay off those mortgages," Mahoney said.

Besides, the congressman pointed out, in this recessionary market, where home values are already plummeting, if several houses are foreclosed upon, the prices of houses in that subdivision will all go down. So even if a homeowner can sell his house, the buyer may not get a loan for the market price, since banks may devalue houses.

The bailout was also necessary, Mahoney said, because the portfolios of average Americans contain tens of thousands of dollars in mortgage-backed securities.

"Mortgage-backed securities are like a cancer, metastasizing and going throughout the entire system," Mahoney told Sebring leaders.

There was even a run on money market accounts, which affects millions of senior citizens living on CDs and low-interest bank accounts, Mahoney said.

Congress is also ready to take companies to task if they broke the law, Mahoney said. Maurice "Hank" Greenberg, the former chairman and CEO of American International Group, assured shareholders that his company was strong. Weeks later, the insurance group was writing down billions in losses. The Safe Harbor law requires companies to act in good faith, and to disclose material weaknesses.

Is there a way to get the money back, asked Mike Willingham, executive director, of the Sebring Airport Authority.

Congress must look at credit default swaps, Mahoney answered, tens of trillions of dollars in unregulated insurance policies that mortgage companies sold each other in case the mortgage-backed securities defaulted. But when those mortgagees did start defaulting, credit default swaps turned out to be worthless, because investment bankers like Lehman Brothers were already bankrupt.

When the U.S. Treasury provides money to Wall Street firms, Mahoney said, Americans will become equity owners of the companies. "We all now own 80 percent of Freddie Mac and Fannie Mae."

Just days after the $85 billion federal bailout, American International Group spent $440,000 on a posh California retreat for its executives and salespeople, complete with massages, pedicures, banquets and golf outings, according to lawmakers investigating the company's meltdown. AIG sent its executives to the coastal St. Regis resort south of Los Angeles, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

"They're going to have to pay that back," Mahoney told the Avon Park leaders at the Hotel Jacaranda, in a luncheon sponsored by Embarq.

How long will it take to resolve the problem, asked Kimble McKay, former chairman of the South Florida Community College trustees.

Congress will have to look at more regulations, Mahoney said. Citizens think that's bad, but it will provide more transparency on Wall Street, he said. Also, the next Congress should insist that if Wall Street comes up with more new products like mortgage-backed securities and credit default swaps, that federal regulators know what the products really are.

The other answer to Willingham's question, was this: "There's going to be a major recession," Mahoney said in Avon Park. When the stock market nose-dived two weeks ago, it was because investors panicked. On Tuesday, there was another 875 point plunge in the Dow Jones Industrial Average, closing at 9,476. The Dow has fallen 33 percent since closing at a record of 14,164.53 points on Oct. 9.

The second selloff, Mahoney said, came because investors understood that company profits were going to be sharply down. Now other countries are bailing out their banks, which led the congressman to believe the lack of controls on the American stock market is showing investors the signs of a worldwide recession.

Gary Pinnell can be reached at gpinnell@highlandstoday.com or 863 386-5828

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