Today, the House Financial Services Committee, chaired by Representative Barney Frank (D-MA), held a hearing on the effects of the Lehman Brothers bankruptcy on state and local governments and other publicly-funded entities.
Testifying at the hearing were the following witnesses:
- Karen Rushing, Clerk of the Circuit Court and County Comptroller, Sarasota County, Florida
- Ron Galatolo, Chancellor San Mateo County Community College, San Mateo, California
- Richard Gordon, Supervisor, San Mateo County Board of Supervisors, Redwood City, California
- Bob Hullinghorst, Boulder County Treasurer, Boulder, Colorado
- Chris Thornberg, Economist, Beacon Economics
- Chriss W. Street, Orange County Treasurer, Santa Ana, California
In their written testimony, the Congresswomen stated that the government’s decision to let Lehman Brothers fail had caused devastating losses for various state and local governments across the country that “invested in Lehman corporate bonds and notes as part of a strict, safe and conservative investment strategy.” They state that these investment losses resulted in “job losses, termination of ongoing construction projects, and elimination or reduction in critical services.” In requesting Treasury provide $1.7 billion of assistance to state and local governments from the remaining $135 billion of authorized TARP funds, they cited the tremendous financial assistance that has already been provided to large financial institutions and the lack of any assistance that has been provided “to any United States public instrumentality.”
The Congresswomen have already proposed legislation which would require the U.S. Treasury to use TARP funds to repurchase certain Lehman Brothers investments held by some government entities at full face value. They assert that such action would be authorized under Section 103(7) of the Emergency Economic Stabilization Act of 2008 (EESA), which requires the Treasury Secretary to take a number of factors into consideration in providing assistance to financial institutions through the purchase of troubled assets, including “the need to ensure stability for United States public instrumentalities, such as counties and cities, that may have suffered significant increased costs or losses in the current market turmoil.”
Several of the witnesses from local governments echoed the requests of the Congresswomen that the Treasury Department use existing TARP funds to purchase Lehman investments held by state and local governments, to mitigate the damaging impact the Lehman bankruptcy has had on their individual communities.