Senate GOP Unites in Opposition to ‘Endless Taxpayer Bailouts’ in New Financial Regs Bill
In a letter signed by the entire GOP Senate contingent and sent to Senate Majority Leader Harry Reid (D-Nev.), Republicans said they are “united in our opposition” to the bill because it imposes too much regulation and allows for “endless” bailouts.
“We are united in our opposition to the partisan legislation reported by the Senate Banking Committee,” the letter states. “As currently constructed, this bill allows for endless taxpayer bailouts of Wall Street and establishes new and unlimited regulatory powers that will stifle small businesses and community banks.”
The Republicans urge Reid to support the ongoing negotiations in the Banking and Agriculture Committees, expressing confidence that if Democrats are willing to negotiate, Republicans will be willing to support the bill.
“We urge you to support the bipartisan negotiations by the Banking and Agriculture Committees,” states the Republicans’ letter. “We are confident that the Senate can overcome political tensions and provide a bipartisan approach to financial reform this year.”
Senator Chris Dodd (D-Conn.) the chairman of the Senate Banking Committee and the chief author of the legislation, issued a lengthy statement on April 16 – after multiple press reports on the united GOP opposition – pointing out that he has led the very negotiations that Republicans urged Reid to support.
“We can disagree over serious, substantive issues,” Dodd said. “We can have a real debate over the real future of our country, but if this bill does not represent a bipartisan effort, I don’t know what does.”
“My door has always been open,” Dodd said. “I am always willing to listen to anyone with good ideas.”
Dodd said he was willing to “work on this together,” telling Republicans they could have a debate but that they should not “engage in nonsense.” “At this point, I say to my colleagues, bring me your ideas, let’s work on this together, let’s debate the bill, and pass strong Wall Street reform, and protect our country from the kinds of abuses that lost so many their jobs, their homes, and their life savings,” said Dodd. “But let’s not engage in nonsense.”
While Dodd’s statement focused on rebutting the GOP charge that his bill was “partisan legislation,” it did not address the specific criticisms the Republicans offered, particularly the contention that the bill allowed for “endless” bailouts.
That charge comes from a provision in the bill that allows the Federal Deposit Insurance Corporation (FDIC) to borrow federal (taxpayer) dollars to provide a failed firm with “working capital,” essentially to keep it financially afloat while the government dismantles it.
The bill also allows the government to guarantee any or all of the failed company’s debt, meaning that should a major financial institution go under and be seized by the government – the result of such a failure under the bill – the federal government would backstop any loans the company has to make to stay afloat, paying out any and all of the failed firm’s obligations the government deems necessary.
While the bill would establish a $50-billion liquidation fund to cover the cost of winding down a failed firm, that sum is much less than the $70 billion the government gave to the American International Group (AIG) and the additional $95 billion given to Citigroup and Bank of America.
If the liquidation fund were to run out of money, it could borrow that money from the Treasury, so long as the government, which would be running the company at that point, determined whether the failed firm could pay the government back.
“Upon appointment by the [Treasury] Secretary of the [Federal Deposit Insurance] Corporation as receiver for a covered financial company, the Corporation is authorized to issue obligations [borrow money] to the Secretary,” the bill reads.
The Treasury Secretary may then sell those debt obligations to other investors. All such transactions are considered “public debt transactions,” meaning that for all intents and purposes, the FDIC can borrow as much money as it needs from the Treasury to keep a failed firm afloat.
“All purchases and sales by the Secretary of such obligations under this paragraph shall be treated as public debt transactions of the United States, and the proceeds from the sale of any obligations acquired by the Secretary under this paragraph shall be deposited into the Treasury of the United States as miscellaneous receipts.”