Competitive Enterprise Institute Lies, Claims Wall Street Reform Would Be "Permanent Bailout"

April 19, 2010 10:40 am ET

On April 16, 2010, the Competitive Enterprise Institute repeated the Frank Luntz-inspired lies that Wall Street reform would create a "permanent bailout fund" and reward creditors of the failed firms. In reality, the bill does NOT reward or bailout firms, but safely dismantles "any failed financial company" that threatens the stability of the entire economy.  The costs of dissolving these companies are paid NOT by taxpayers, but by fees levied on financial companies.  Additionally, the bill specifically states a failed firm's creditors shall "bear losses."

Competitive Enterprise Institute Lies About Financial Reform

Competitive Enterprise Institute:

Ironically, at the same time the SEC is seeking justice for Goldman's alleged victims, President Obama and Senate Banking Committee Chairman Chris Dodd (D-Conn.) are pushing a bill would reward the firm with potentially billions of dollars by instituting a so-called "resolution authority" that would, in practice, be a permanent bailout fund.

Supporters of Dodd's bill maintain that it does not create bailouts because the failing firm's shareholders would be wiped out and its managers would be fired. But what they don't say is that the money from the $50 billion resolution fund would be used to frequently give creditors of this firm a better deal than they would have in bankruptcy. [Competitive Enterprise Institute, 4/16/10; emphasis added]

"Permanent Bailout" Line Is Straight From Frank Luntz's Pro-Wall Street Memo

Frank Luntz:

[Luntz, The Language of Financial Reform, January 2010]

Frank Luntz Represents A Myriad Of Wall Street & Financial Interests.  According to Frank Luntz's companies, Luntz, Maslansky Strategic Research and The Word Doctors, his clients include:

Ameriquest Mortgage Company
American Express
Bear Stearns
Merrill Lynch
U.S. Chamber of Commerce
VanKampen Investments

[Luntz, Maslansky Strategic Research, accessed 2/1/10; Word Doctors Corporate Clients, accessed 2/1/10; Word Doctors Association Clients; accessed 2/1/10]

The Bill Would Dismantle Failing Banks, Not "Reward" Or Bail Them Out

Contrary to CEI's  assertions, the bill makes bailouts "impossible."  The bill does NOT reward or bailout firms, but safely dismantles "any failed financial company" that threatens the entire economy.  The costs of dissolving these companies are paid NOT by taxpayers, but by fees levied on financial companies.

The Senate's Restoring American Financial Stability Act Ends The Risky Bailout Culture, Liquidates Failed Institutions.  According to Section 204 of the Restoring American Financial Stability Act of 2010:

[Restoring American Financial Stability Act of 2010, accessed 4/19/10]

Financial Reform Ends The Bailout Culture, Brings Accountability And Transparency To Wall Street

Bush-Appointed FDIC Chair Said Wall Street Reform Will Make Bailouts "Impossible." In an interview with American Banker, FDIC chairman Sheila Bair said, "The status quo is bailouts. That's what we have now. If you don't do anything, you are going to keep having bailouts. Bankruptcy doesn't work - we saw that with Lehman Brothers.... [This bill] makes them impossible and it should. We worked really hard to squeeze bailout language out of this bill. The construct is you can't bail out an individual institution - you just can't do it. In a true liquidity crisis, the FDIC and the Fed can provide systemwide support in terms of liquidity support - lending and debt guarantees - but even then, a default would trigger resolution or bankruptcy." [American Banker, 4/15/10]

WSJ: Senate Bill "Would Make A Government Bailout Virtually Impossible." As reported by the Wall Street Journal: "A spokeswoman for the Connecticut Democrat said Friday he would change a provision that would have allowed the Federal Reserve to use emergency powers to lend to an individual 'financial market utility.' Only payment and clearing firms deemed 'systemically important' by a proposed council of regulators would have been eligible.... The change Mr. Dodd has agreed to would make a government bailout virtually impossible, though the government would be able to seize and dismantle failing firms." [Wall Street Journal via Factiva, 3/19/10]

Kudlow: "Dodd's Financial-Regulation Proposal Raises The Possibility Of Substantial Progress On The Road To Ending 'Too Big To Fail' (TBTF) And Bailout Nation." In a column written for RealClearMarkets, Larry Kudlow wrote, "Sen. Chris Dodd's financial-regulation proposal raises the possibility of substantial progress on the road to ending 'too big to fail' (TBTF) and bailout nation for banks and other financial institutions... First, under the Dodd scheme, large complex companies will have to submit plans for rapid and orderly shutdowns should they go under. These are called 'funeral plans.' Then, in terms of these orderly shutdowns, the bill would create an 'orderly liquidation mechanism for the FDIC to unwind failing systemically significant financial companies. Shareholders and unsecured creditors will bear losses and management will be removed.' Good." [Kudlow, RealClearMarkets, 3/16/10]

Washington Post: "The Bill Provides A Way To Rein In The Risks They Take With That Money, And Taxpayers Won't Be On The Hook If They Nevertheless Collapse." In an editorial written after the Senate released its plan to reform the financial system, the Washington Post wrote, "Like the House bill, it would authorize a council of regulators to name systemically risky institutions, limit their leverage and require them to pay into a $50 billion resolution fund that would deal with a big firm's collapse. To be sure, listing 'too big to fail' institutions only encourages the market to offer them artificially easy funding. But at least the bill provides a way to rein in the risks they take with that money, and taxpayers won't be on the hook if they nevertheless collapse." [Washington Post, 3/18/10]

A Failed Firm's Creditors Will "Bear Losses"

The Dodd Bill Specifically States Creditors Of Failed Companies Will "Bear Losses." According to Section 206 of the Restoring American Financial Stability Act of 2010:

[Restoring American Financial Stability Act of 2010, accessed 4/19/10]

Print