SUMMARY OF WHITE HOUSE CONFERENCE CALLS WITH STATE AND LOCAL OFFICIALS ON THE EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 (EESA)
On September 30, 2008, at 1:00 p.m. EDT, the White House conducted a conference call with state and local officials concerning the credit markets, the economy, and the Emergency Economic Stabilization Act of 2008. The White House was represented by Barry Jackson, Assistant to the President for Strategic Initiatives and External Affairs, and Pierce Scranton, Chief of Staff of the Council of Economic Advisers. Participating in the call were state treasurers, mayors, state legislators, staff officers of the Budgets and Revenue Committee of NCSL, the president-elect of NALFO and other legislative staff.
Mr. Scranton described the current credit market and economic situation. He stated that the stock market lost $1.2 trillion in value on September 29, which adversely affects pension funds, individual retirement accounts, and the economy as a whole.
He said that credit markets were extremely tight. Commercial paper is currently trading on a five-day basis, compared with a 30-day normal basis. The federal funds rate has been at two percent, but is now at seven percent. The rate for overnight bank loans (LIBOR) is now 6.8 percent, and demand for treasury bills is high. Yields on T-bills were at 0.25 percent this morning, meaning that people are willing to lose money rather than risk lending to one another. For only the second time in its history, the Federal Home Loan Bank today cancelled an auction due to concern that there would be no market for the federally-backed instruments.
Bank lending is frozen. Small business access to short-term financing is gone. If this situation persists, consumers will not be able to obtain car loans or borrow for other purposes. Small businesses that depend on short-term financing are closing, and borrowing costs will soon increase, which will lead to higher prices for consumers.
If Congress does not act, state and local governments will have greater difficulty in borrowing, affecting construction and general operation of governments. State pension funds are at risk.
The EESA has two goals: protecting taxpayer dollars, and restoring confidence in the financial markets. Up to $700 billion is included in the EESA proposal, which will not be lost. Most of it will be repaid over time as the assets backing the debt regain value.
Mr. Jackson stated that the foundation of the EESA will "pretty much" stay in place as efforts are made to pass the bill. He said that work is being done on modifications to the bill. He emphasized that the bill contains many options, including purchasing assets, insurance, loans, and loan guarantees.
A second conference call was conducted on October 1 at 2:00 p.m. EDT. The White House again emphasized the severe problems in the credit market and noted that they were affecting the ability of state and local governments to issue debt. Mr. Scranton described provisions added to the new version of the economic rescue plan, including increasing the limit on FDIC insurance from $100,000 to $250,000 and various forms of tax relief, including relief from the alternative minimum tax and deductibility of sales taxes in states that do not have an income tax.
This summary was compiled by legislative staff who participated in the White House calls.