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Senator Doug Whitsett
     R- Klamath Falls, District 28

  Phone: 503-986-1728    900 Court St. NE, S-302, Salem Oregon 97301
  Email: sen.dougwhitsett@state.or.us     Website: http://www.leg.state.or.us/whitsett
Spring E-Newsletter                         April 20, 2008 

Dear Friends,

      Senate President Peter Courtney (D-Salem/Gervais/Woodburn) recently appointed members to serve on the Senate interim committees. I was appointed to the Ways and Means Committee, Emergency Board and to be Vice-Chair of the Judiciary Committee. Although I am always disappointed not to be appointed to work on natural resources committees, I am generally pleased with the assignments. Ways and Means is the powerful budget writing committee that controls virtually all state expenditures. The Emergency Board is the interim counterpart to the Ways and Means committee that controls all changes in the state budget expenses while the Legislature is not in session. My position on the Judiciary Committee will allow direct input into laws relating to the pervasive drug and alcohol abuse that are destroying our families and communities.
      I am also serving on the Office of Administrative Hearings Oversight Committee that is developing legislation to make enforcement of administrative rules more fair and equitable to our citizens.  The proposed legislation would significantly improve the administrative law process enabling citizens to have more equal footing in the process.
       Lastly, I am currently serving on the Interim Committees on Court Facilities and Technology. The Facilities Committee is looking at methods of financing critically needed construction/remodeling of county courthouses and other county judicial facilities throughout the state. The Court Technology Committee is overseeing the financing of our judicial services development of the electronic filing and reporting system that will save our cities, counties and state tens of million dollars annually.

Thoughts on the state of our economy:
      The collapse of the residential sub-prime mortgage industry, as well as the rapid increase in home mortgage foreclosures, was to be expected. Many of the mortgages were speculative, by both the purchaser of the home, as well as the mortgage lender. The loans were not adequately collateralized to insure either maintenance of home value or loan repayment to the mortgage lender. Many of the new home owners had no realistic capacity to make the principle and interest payments on the loans. The mortgages were structured to allow the home owner to occupy the house while betting that the value of the house would increase enough for the home owner to either make a profit or refinance.
      Both the home buyer and the mortgage lenders were gambling that the real estate market would continue to inflate. When the real estate market deteriorated instead they both lost their wager. About 6 percent of all home loan mortgages are subject to default and possible foreclosure within the next two years.
       A parallel, and even larger debacle, is occurring in sub-prime corporate loans or “junk bonds”. Inadequately collateralized bonds have been widely sold with creative repayment schemes and interest rates that were inappropriately low for the risk involved.
      The sale of these sub-prime mortgages and junk bonds was enabled and encouraged by a financial scheme that borders on criminal. Brokerage firms packaged these risky mortgages and bonds into a new form of equity, and then sold shares of those equities on the stock market. The mortgage equities are called collateralized debt obligations, while the junk bond equities are called collateralized loan obligations.
      Firms were created to insure these sub-prime mortgages and junk bonds against default through a form of insurance called credit default swaps. These newly created insurance companies had virtually no requirement for either reserves or collateral. In fact, most of the insurance companies have virtually no capacity to actually pay for any default that may occur. The fact of the matter is, many of these credit default swap companies will simply dissolved their corporate businesses and walk away from the debt default that they are responsible for insuring when significant defaults do occur.  
      The sub-prime mortgage and junk bond equities were rated as AA, and even AAA quality investments by the rating agencies because they were insured against default. How the rating agencies reached the unwarranted conclusion that junk equities insured against default by companies with significantly inadequate reserves should be highly rated is unclear at best.
      These sub-prime mortgage and junk bond equities were then traded on the derivatives market with leverage of up to 50 to 1. For instance, $20,000 could be bet that one million dollars worth of these junk equities would continue to perform allowing the investor to realize the profits from a million dollar investment. However, a 2 percent decrease in value would wipe out the entire investment. Any further loss then would result in default of the derivatives fund, unless the losses are made up by cash paid by the investor. For instance, when Bear Sterns was unable to meet these debt obligations the huge investment bank became insolvent in a matter of days.
       Millions of investors were sucked into this scam because the equities paid excellent returns and because they were sold as being both insured and highly rated. These investments have grown nine fold during the past three years. The total debt obligations leveraged at all levels in this scheme is well more than $60 trillion according to a Wall Street Journal article last week. That incredible debt is all secured by virtually worthless sub-prime mortgages and junk bonds insured against default by companies with virtually no capacity or reserves to cover the default losses. The default of this amount of unsecured debt could well cause a worldwide depression.
       No national financial upheaval would occur if 6 percent of the most risky home mortgages defaulted and were allowed to be foreclosed. The real estate market would adjust prices downward, as it has done in the past, creating buying opportunities that would encourage new investment in real estate. In fact, 94 percent of all home mortgages are structured and collateralized so that the home owner can continue to make payments as usual. The problem is not the sub-prime loans themselves, but the equity scheme that encouraged the loans to be made.
      The question that begs asking is: Where was the Security and Exchange Commission when this scheme was created and developed, and who will be held responsible for the scam?

Thoughts from Rural Oregon:
      The rural urban divide is a truly bipartisan issue that is often raised but rarely given honest discussion. The fact of the matter is that 80 percent of Oregonians live within 20 miles of the Willamette River, and rightfully, enjoy 80 percent of the representation in both legislative chambers. That reality leaves more than 80 percent of Oregon’s geographic area, and 20 percent of her people, to be represented by only 9 Senators and 18 Representatives. In Fact, 13 Senators and 26 Representatives live in districts located entirely or partly within Multnomah, Washington, and Clackamas counties. 
      Moreover, the effective representation or our more rural citizens is further diluted because a significant number of other Senate and House districts also include portions of that Willamette River corridor. It is readily apparent to those who do not live in that Willamette River corridor that rules and regulations that may be perfectly reasonable and appropriate for that heavily populated portion of Oregon, are neither appropriate nor reasonable for those who live in less densely populated areas.
      A quick example that comes to mind is the Oregon Department of Transportation Division 51 rule as it was applied to the Safeway store in Lakeview. Safeway proposed an enlargement of their store and services that would have created 18 badly needed new jobs. The store is located on Main Street which is also Highway 395. Traffic is normally such that when they see a car on the street they wave because it is their neighbor. Regardless of this fact, ODOT applied the Division 51 rule the same as if it were being applied on Sandy Boulevard in downtown Portland. ODOT denied Safeway a second access to the street that was critical to the success of the increased service effort. Rather than fight ODOT for a small store in Lakeview, Safeway chose to abandon their expansion plan. The outcome of this inappropriate application of a statewide rule was the loss of expanded services, the loss of construction jobs, and the loss of about 18 critically needed permanent jobs for the citizens of Lake County.
      Unfortunately for rural Oregonians, legislation is a numbers game where 16 Senate votes, 31 House votes and the signature of our Governor is required to pass any legislative act. For example, the 13 Senators from the 3 Portland area counties only need 3 more votes to reach a Senate majority. Conversely, the 4 Senators from east of the Cascades need 12 more votes to reach the required majority
       I am leading an effort to help address the urban rural divide issues by creating a statewide nonpartisan caucus to provide legislators with another viable voting alternative. I organized a gathering during the 2008 Special Session with the sole intent of creating that non-partisan caucus. I was joined by Senator Betsy Johnson (D-Scappoose), Representative Ron Maurer (R-Grants Pass) and Representative Arnie Roblan (D-Coos Bay) in hosting that initial organizational meeting of the caucus. That initial effort was attended by 28 legislators. We are continuing our effort throughout the legislative interim to bring the existing bipartisan Coastal, Southern Oregon, and Eastern Oregon caucuses together and to add additional interested legislators from across Oregon.

         In closing, we would like to personally congratulate Merrill Elementary School for being named a 2008 Celebrating Student Success Champion. This prestigious award is given by the Oregon Department of Education to honor and reward the dedication, leadership and focus of Oregon schools that are successfully closing the achievement gap. The 16 schools that are recognized all typically face highly diverse student populations and high poverty rates. But in spite of these odds, these schools are demonstrating that significant academic progress and achievements can be made. Please join us in congratulating Principal Larita Ongman and all the teachers at Merrill Elementary whose hard work and dedication to excellence should be a model for all education administrators to follow. We are proud of you all.

Best regards,


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