Sen. Gregg Applauds Provision In Wall Street Bill, Professes It "Does End Too Big To Fail"

April 20, 2010 3:47 pm ET — Chris Harris

At the center of the fight over Wall Street reform is a nonexistent "permanent bailout fund." Although it's not clear why.

Despite the ranting of dishonest Wall Street warriors, there is universal agreement among neutral observers and serious politicians in both parties that no bailout fund exists -- at all -- anywhere.

The current manifestation of the lie states that the $50 billion "resolution authority" fund that deconstructs and liquidates failing financial institutions amounts to a "permanent bailout." Which, of course, it doesn't.

Today on the Senate floor, Republican Sen. Judd Gregg (NH) applauded the "resolution authority" provision in the bill, stating it "actually does end too big to fail."



Sen. Judd Gregg:

Senator Corker and Senator Warner, two parties, two different parties, have actually put together a concept, we call it "resolution authority" around here, which actually does end too big to fail and does it the right way. It essentially says if a company, an entity gets, which is a huge entity, gets out of whack, overextends itself, gets too much risk, no longer viable, well, then we're gonna resolve that company. The stockholders will be wiped out, unsecured bondholders will be wiped out, and the company will basically flow into bankruptcy [unintelligible] and will not be conserved, will not be conserved. And so that's a good approach, and it's a bipartisan approach.

Of course, Sen. Gregg is right in this regard.  The Washington Post's Ezra Klein expertly explained the facts behind the "resolution authority" in Sen. Chris Dodd's Wall Street reform bill:

But Section 210, subsection (n), matters because it explains the workings of the "orderly liquidation fund," that $50 billion pot o' cash that Mitch McConnell and the Republicans have decided to call a "bailout fund."

Here's how the liquidation fund works: A year after the bill is signed, the secretary of the Treasury begins taxing banks based on the risk they pose to the financial system. This tax must raise $50 billion and last for at least five years but no more than 10 years. So first, that's where the fund comes from: a tax on too-big-to-fail banks, which has the added bonus of giving a slight advantage to smaller banks that won't be laboring under this tax.


Whatever you want to call this, it isn't a bailout. It's the death of the company. And the fund is way of forcing too-big-to-fail banks to pay for the execution.


So let's just be clear: The alternative to the liquidation fund is Wall Street's preference. That should tell you pretty much all you need to know about whether the industry really views this as a bailout.