Rep. Anna Eshoo, D-Palo Alto, introduced the Restitution for Local Government Act of 2010 on Thursday to help counties and other public entities recoup over $1.7 billion lost when Lehman Brothers collapsed in September 2008, representing the single largest bankruptcy in the history of the United States.
The following is an abridged news release from her office.
The legislation would require the Treasury Department to purchase Lehman's assets from these municipalities using profits from the sale of any future TARP assets.
"The purpose of TARP was to prevent the collapse of financial institutions and mitigate the damage of their reckless behavior on the American people. More than 40 municipalities, including San Mateo County in my Congressional District, invested over a billion dollars in the purportedly stable and safe financial products of Lehman Brothers," said Eshoo, whose district also includes Mountain View.
"When Lehman collapsed, San Mateo County and other public agencies across the country were crippled, and we owe them some relief."
California requires counties to invest money in an investment pool. The San Mateo County pool lost $155 million when Lehman collapsed, causing losses to community college and local school districts, transportation agencies and other entities. Santa Clara County did not have as much invested in Lehman, and therefore fared better after September 2008.
As a result of San Mateo County's loss, teachers have been laid off, road and school repairs have been canceled, and construction of new buildings halted. A report commissioned by the county estimated that over 1,500 jobs were lost or not created because of the loss of taxpayer dollars.
The Treasury Department has earned $15.4 billion from dividends, interest and the sale of bank stock which it purchased through TARP. It is expected that another $7.5 billion from the sale of their 27 percent stake in Citigroup will be earned.
The Restitution for Local Government Act will require the Treasury to use future profits from TARP assets to purchase Lehman securities, bonds and other financial instruments held by local governments on September 12, 2008, the Friday before Lehman collapsed.
Under the legislation, entities which receive funds must report back to the federal government about how the money is used and demonstrate job creation, retention and economic activity equal to the amount of funds they received.
"By selling TARP assets, the federal government has already made more than 10 times the amount of money that public institutions lost when Lehman collapsed," Eshoo said. "My legislation will require the Secretary of the Treasury to provide relief to these institutions with any future profit."
Rep. Jackie Speier, D-San Francisco, a co-sponsor of the measure, stated: "Lehman Brothers' financial practices were mired in deceit and deception.
"The ensuing investment losses have fallen directly on the shoulders of my constituents who have to bear the burden of reduced educational, health and public safety services. It is imperative that this measure be enacted to protect the welfare of residents of all the municipalities stung by the Lehman Brothers' shell game."