Fresh off his successful (for now) effort to ram through an unpopular healthcare “reform” law, President Barack Obama is now fighting for legislation on Capitol Hill that would set up a permanent fund to bail out companies in the financial sector.
Of course, that’s not how his team is spinning things. On the White House Blog, Jen Psaki claims that “under the Senate bill, the taxpayers will never be asked to foot the bill for Wall Street’s irresponsibility.” But that’s simply not true.
Vitter is right to note that Wall Street supports this measure. Why? Because big investment houses realize they’ll get bailed out and would have less reason to worry about risky behavior.
Sen. Chris Dodd (D.-Conn.) crafted the Senate version of so-called “Financial Reform” with the support of the President. The procedure used to date resembles the non-transparent and secretive tactics used to pass ObamaCare. The Senate Banking
Committee marked up the bill in 22 minutes, with no amendments offered and no debate allowed. Now, Senate Majority Leader Harry Reid and President Obama are trying to rush the bill to the floor before the American people have a chance to understand that it contains a hidden, permanent bailout fund.
The Dodd legislation may be on the floor of the Senate as early as next week. A version passed the House, in a slightly different form, on December 11 by a 223-to-202 margin.
Much like with ObamaCare, any bill that passes the Senate will then be sent to the House.
There are two specific problems with the Senate approach to “reform.”
First, this legislation would create a new $50-billion bailout slush fund controlled by the Federal Deposit Insurance Corporation (FDIC). Very big banks and other “eligible financial companies” would be taxed by the FDIC to build up this fund. As with any tax, though, it’s consumers--you and me–who would eventually pay this levy.
The Obama Administration this weekend requested that the $50 billion pre-funded bailout money be removed from the bill. But according to Foxnews.com, Treasury Secretary Tim Geithner advocated last year that any bailout funding should be addressed post bailout through a tax on big Wall Street firms. If Senate Democrats only take out the $50 billion slush fund and leave the bailout authority intact, then the taxpayers will still be on the hook for any future bailouts.
Another problem with this bill is that it would bail out the creditors of companies and wouldn’t require any creditor to take a loss after a company starts to fail. If the bailout slush fund is tapped, the FDIC would have the power to reimburse creditors. That could allow the FDIC to pay creditors more than they invested (pursuant to Section 210 of the Dodd bill).
Think about that. If creditors know they aren’t likely take a loss, and risk has been eliminated from an investment, its taxpayers who are assuming all the risk. Of course, taxpayers get none of the rewards if the investments pay off–we would simply be on the hook if they fail. Taxpayers could expect no reward for having insured transactions and protected wealthy investors from any risk. The AIG bailout is a great example of this model.
If the strong-arm tactics used in the passage of ObamaCare are any lesson to Americans, we should get ready for Senate Majority Leader Harry Reid (D.-Nev.) to block all amendments in an attempt to jam a bad bill through the Senate. The Senate bill has many problems, but the multiple bailouts in the bill should raise the eyebrows of Tea Partiers nationwide and taxpayers who are concerned about becoming the insurer of last resort for Wall Street gamblers.
Brian Darling is director of U.S. Senate Relations at The Heritage Foundation.
First appeared in Human Events