14th District candidates take stances on proposed economic bailouts

On the verge of the largest government bailout ever, the congressman from Illinois' 14th District is ready to cast a vote in favor of a $700 billion injection of taxpayer money into the banking industry. But the man seeking to replace him believes that's absolutely the wrong thing to do.

Congressman Bill Foster testified before the House of Representatives' Financial Services Committee Wednesday in favor of a proposal that bails out Wall Street by using $700 billion to buy up "toxic" investments rooted in high-risk home loans that are failing at an increasingly higher rates.

The plan currently in favor is a reverse auction that would see regulated financial institutions compete to sell their securities to the U.S. Treasury. The government purchase would essentially cleanse the securities, allowing them to regain some of their value.

Foster said he wants to take that one step further by injecting a benefit back to the government on the back end, when the securities are sold back to private investors, a plan dubbed the "equity" solution. That addendum would give the taxpayers stock or equity in the banks that take advantage of the bailout, helping recoup the injection of taxpayer money into the market as it recovers. Foster said that's the only way the industry will learn that it can't continue to assume even a partial bailout by taxpayers whenever it approves a batch of bad loans.

"I believe this is a far better deal for the taxpayer," Foster said. "The companies will be required to write down the value of their toxic assets and, in exchange, the government injects cash by buying a large fraction of these banks. Over time, the market recovers and the banks are sold back to private investors."

Foster's opponent in his re-election bid, Republican Jim Oberweis, said Tuesday that he agrees immediate government action is needed, but it should not make the government the nation's largest banker.

"I respectfully disagree with (Foster) that government ownership is the answer to this mess, or even a part of the answer to this mess," Oberweis said in a written statement. "The current crisis is far more a result a previous government actions in the private markets than it is a result of government inaction. But if it's true that it was government that got us into this mess, why should we believe that they're the guys who will get us out if we just give them an ownership stake?"

Foster also testified Wednesday in favor of tying CEO pay to company performance in good times and bad so they don't walk away from the current financial disaster they helped create with a reward simply for taking the risk.

"This is at the root of the crisis," Foster said. "There is a fundamental misalignment of the incentives that encourages extreme risk-taking behaviors on the part of the CEOs. Demanding both upside and downside compensation for CEOs is crucial for any reforms."