FactCheck.org Smacks Down Misnamed "Committee for Truth in Politics" Ad On Financial Reform

February 04, 2010 4:56 pm ET

The misnamed Committee for Truth in Politics recently released an ad criticizing the Wall Street Reform and Consumer Protection Act.  The ad misleadingly criticizes the bill for being a "$4 TRILLION Bailout." However, in their analysis of the ad, FactCheck.org found that "the Federal Reserve can, with approval from an oversight council and the secretary of the Treasury, loan money to help prop up financial entities. And such monies are capped at $4 trillion. But the Federal Reserve already had such authority - with no stipulated cap on the amount it could loan."

Committee For (Mis)Truth In Politics

FactCheck.org Lays Down The Law

FactCheck.org:

The ad, in minute-long and 30-second versions, claims in on-screen graphics that the "financial reform bill" amounts to "[a] new $4 trillion bailout for banks. If they fail. Again. $4,000,000,000,000."

[...]

Does it? Not exactly. The bill (H.R. 4173), which passed the House with no Republican support, does say that "in unusual and exigent circumstances" the Federal Reserve can, with approval from an oversight council and the secretary of the Treasury, loan money to help prop up financial entities. And such monies are capped at $4 trillion. But the Federal Reserve already had such authority - with no stipulated cap on the amount it could loan. And banks that "fail," as the ad says, could be dissolved by regulators, according to another provision in the bill. Any money needed for the dissolution would come from a $150 billion fund formed at least partly by fees collected from large financial institutions.

When we asked Bopp for support for the ad, he pointed us to a Bloomberg News piece by columnist David Reilly, in which Reilly said of the legislation: "It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for 'no-more-bailouts' talk. That is more than twice what the Fed pumped into markets this time around." (It's important to note that this is an opinion piece; as Bloomberg says at the bottom of the column: "David Reilly is a Bloomberg News columnist. The opinions expressed are his own.") [FactCheck.org, 2/3/10; emphasis added]

The Case For Comprehensive Financial Regulatory Reform

"Banks And Other Financial Institutions Are Now So Interconnected That Problems At One Can Lead To Problems At Others." Brookings Institution Economic Studies Fellow Douglas J. Elliot wrote, "Regulation has largely focused on ensuring that each financial institution was sufficiently sound in its own right with less attention paid to how the dominos could fall if a major institution fails. Banks and other financial institutions are now so interconnected that problems at one can lead to problems at others which are then magnified throughout the entire system. The level of systemic risk before this crisis was much higher than had been appreciated, spurring the government into significantly more extreme responses than one would have expected to be necessary." [Brookings Institution, 6/17/09]

"Investors Also Need To Have Their Faith Restored In Some Of The Basic Tools That Markets Rely On." Center for American Progress Vice President for Economic Policy Michael Ettlinger wrote: "Investors also need to have their faith restored in some of the basic tools that markets rely on. Without reform it's going to be a long time before wise investors place much faith in credit-rating companies and professional guidance from the financial services industry. Nor are many going to be willing to put their trust in black box models developed by Wall Street's mathematical geniuses." [Center for American Progress, 6/18/09]

The Real Cause Of The Financial Crisis

"Lax Regulation, Supervisory Neglect, Lack Of Transparency, And Conflicts Of Interest All Undermined The Foundations Of Our Financial System."  In a November 2008 hearing in the House Committee on Oversight and Government Reform, Center for American Progress Fellow Michael Barr testified on the cause of the financial collapse.  Barr said, "We must act aggressively to contain the crisis, reform our home mortgage system, and develop new approaches to broad-scale housing and financial-sector reform-beginning with a clear understanding of the problem itself. Lax regulation, supervisory neglect, lack of transparency, and conflicts of interest all undermined the foundations of our financial system. Financial innovations in securitization and other factors brought increased liquidity, but also broadened the wedge between the incentives facing brokers, lenders, borrowers, rating agencies, securitizers, loan servicers, and investors. The lack of transparency and oversight, coupled with rising home prices, hid the problems for some time. When home prices and other assets imploded, credit woes cascaded through the financial system, and the lack of trust in the system meant that even sound financial institutions faced contagion from the crisis. That is why we need fundamental change in our system of financial regulation." [Center for American Progress, 11/14/08; emphasis added]

"It Was A Disdain For Regulation By Those Tasked With Enforcing The Rules... That Caused The Financial Crisis." Center for American Progress Vice President for Economic Policy Michael Ettlinger wrote: "The descent into the Great Recession established without a doubt the necessity of establishing a set of rules and regulations to guide our nation's financial structure. It was a disdain for regulation by those tasked with enforcing the rules-and an incoherent regulatory structure that allowed them to get away with it-that caused the financial crisis and precipitated the Great Recession that has left more than 15 million Americans unemployed and searching for work. We cannot move forward on a path of sustained economic growth until we have addressed the lapses in financial regulation. Delaying on this policy agenda is only hampering economic growth, and President Barack Obama recognized this in his speech last night. Financial firms need to know the new rules on leverage requirements, their consumers, and what kinds of businesses can be combined under one roof, so that they can adapt their business models and get back to the important role they play in the economy of providing credit and markets." [Center for American Progress, 1/28/10]

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