Welch says more steps needed to resolve economic crisis
By JOHN FLOWERS
MIDDLEBURY — U.S. Rep. Peter Welch, D-Vt., said the $700 billion economic rescue plan passed by Congress on Oct. 3 is just the first step federal lawmakers and the next president will have to take in shoring up what has become a global economic crisis.
Welch, running for a second term as Vermont’s lone U.S. representative, discussed the rescue plan and his legislative priorities during an interview at the Addison Independent on Thursday.
Welch on Sept. 29 voted against the first, ill-fated rescue plan fielded by the U.S. House, saying it lacked proper oversight and that he was pressing for the best possible taxpayer safeguards while always embracing the need for government action.
Welch and a majority of his colleagues shifted gears and supported a second version of the plan that passed on Oct. 3, after a few changes had been incorporated into the bill. Welch said that version earned his vote because:
• It increased federal insurance of people’s bank deposits from the current $100,000 to $250,000.
“That is something I have been advocating for a while,” Welch said.
• It requires the Securities and Exchange Commission to have banks use “mark-to-value” accounting, not just the current “mark-to-market” accounting, when it comes to assessing real estate mortgage values. Welch explained that a mark-to-value accounting system reflects a property’s cash flow to the bank at the time of assessment, whereas the mark-to-market accounting system does not.
“Mark-to-market is a one-size-fits-all approach that results in oftentimes a number that does not reflect the actual value of the asset,” Welch explained. “That means the bank’s balance sheet is lower and it means they have to build up more reserves (before they can) lend more money.”
A mark-to-value system reflects, for example, the ability of a property to generate income through a rent-paying tenant.
“That makes a huge difference in the balance sheets of these banks and mitigates taxpayer risk,” Welch said.
• He received assurances from presidential candidate Sen. Barack Obama, D-Ill., that if elected he would support more assistance to struggling homeowners with bankruptcy protections, and he would support the creation of a “recoupment” fund — financed through a fee on stock transactions — so the financial services industry (and not taxpayers), will ultimately foot the bill for the rescue.
“I was convinced there was an emergency, and I think this is going to be step one,” Welch said. “We have a rough road ahead and a deep hole to dig out of.”
The broader solution will not be of the cookie-cutter variety, according to Welch. He harked back to the approach to economic stimulation practiced by President Franklin Delano Roosevelt.
“Going forward, I think we need to have a sense of FDR-style experimentation — see what works, and if it doesn’t, adjust it,” Welch said.
“There are two problems here,” Welch said. “One is the contraction of credit. The other is the deterioration in the fundamentals of the economy — rising unemployment, lower consumer spending and weak demand.”
Welch is particularly concerned about the contraction of credit, a phenomenon that is shutting off loans to homeowners and businesses. Shorn of credit opportunities, many businesses will be unable to reach their maximum potential and many families will be deprived of the opportunity to buy their own home, Welch noted.
“The credit contraction can be devastating,” Welch said. “And it’s a bitter pill for us in Vermont, because the problem was really created by reckless borrowing and reckless lending on Wall Street and by imprudent individuals. By and large, Vermont has played by the old-style rules — you borrow what you can afford and bankers lend to people who are going to pay back their loans. But the problem is the credit contraction can create an undertow that can do real damage to Vermont businesses and Vermonters.”
In the short-term, Welch will urge Congress to take three steps to bolster the economy:
• Pass an economic stimulus package that “would have, as its goal, getting people back to work, investing money in infrastructure.” Welch said that Gov. James Douglas has given him a list of projects that could be initiated if funding is provided.
• Waive the current Medicaid health care program match of one dollar of state money for every two dollars of federal money.
“It’s a big burden for the state and in past recessions the federal government has often helped the state by waiving that match and I think we ought to do that now,” Welch said. “That will take some pressure off our state budget.”
• Extend unemployment benefits from the current 26-week limit to “at least” 39 weeks.
“Unemployment benefits don’t make up for lost wages,” Welch said. “People who are unemployed want to get back to work.”
Welch is pleased with what he helped accomplish during his first term.
“I think we were successful at putting together an agenda that focused on middle class economic issues and restoring accountability,” Welch said.
He said he repeatedly represented Vermonters’ opposition to the Iraq War. He also helped pass legislation limiting the stockpiling of oil reserves while making gasoline more readily available to consumers, strengthening the Farm Bill, and strengthening protections against fraud among military contractors. He said he also successfully fought legislation that would have cost rural Vermont hospitals $35 million in Medicare reimbursement.
“The agenda was about middle class economic concerns, accountability and constant interaction with constituents,” Welch said.
He credited his prior years of experience in the Vermont Senate for helping him learn the ropes quickly in the nation’s capital.
“In some ways, serving in Vermont was an enormous asset,” Welch said. “In Vermont, you have to do your own work; you have no staff. You have to think about things, know people you can get advice from and then you have to work with your colleagues — whether you like them or not, whether they are Democrat or Republican. You find you have to listen to other people and find ways to build coalitions to be successful.”
Congressional Democrats have had to be adept at building coalitions during the past decade, as the Republican Party has held numerical advantages in both the U.S. House and Senate — as well as in the White House — for most of that period. Welch is now optimistic that his party will not only beef up its numbers in Congress, but potentially see Obama elected president.
Should that happen, Welch hopes his party will pursue an agenda that includes restoring confidence in the credit system, fortifying the middle class, investing in infrastructure and alternative energy, bringing U.S. troops back from Iraq, and making health care more affordable to Americans.
ROLE IN AFGHANISTAN
Welch also believes the U.S. needs to take a closer look at its role in Afghanistan.
“I think it’s unwise to be looking for a big increase in military force to stabilize Afghanistan; we’ve seen this movie before,” Welch said. “There is going to be a big debate in the military as to what’s the best way to try to address the threat of terrorism. That’s real. But is the best way to have an army of occupation, a la Iraq, and to some extent heading that way in Afghanistan? Is it the best policy to expect that the military add nation building to its war-fighting mission? I am in disagreement with that.
“The job of the military is to defend America and fight and win wars, and they do it real well,” Welch added. “It’s not their job to set up judicial systems, prison systems, small business lending systems and everything else that goes into a civil society.”
If re-elected to a second term, Welch said he wants to continue working on initiatives to “revive Vermont’s agricultural economy,” contain the rising costs of higher education, and promote policies that allow people to better take care of their needs in their local setting — growing their own food, manufacturing renewable energy and boosting local economies.
“We are in a deep hole,” Welch said. “The next president and Congress are going to have to make some important decisions, and some of them may not be popular.”