Sen. McConnell Doubles Down, Sticks With "Permanent Bailout" Lie
Less than a week after being universally mocked for attacking Wall Street reform immediately after a meeting with 25 Wall Street bankers, Sen. Mitch McConnell took to the Senate floor to give it another shot. Contrary to his assertions, 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."
McConnell Lies About Wall Street Reform
Sen. Mitch McConnell:
So last week I came to the floor to point out the flaws that resulted from this partisan approach. One of the biggest of these were [sic] the creation of a $50 billion bailout fund. It seemed to me, and many others, that the very existence of this fund would perpetuate the same kind of risky behavior that led to the last crisis. [McConnell Floor Speech, 4/19/10]
Last Week, McConnell Met With Bankers And Hedge Fund Managers
About 25 Wall Street executives, many of them hedge fund managers, sat down for a private meeting Thursday afternoon with two of the most powerful Republican lawmakers in Congress: Senate minority leader Mitch McConnell of Kentucky, and John Cornyn, the senior senator from Texas who runs the National Republican Senatorial Committee, one of the primary fundraising arms of the Republican Party. [FoxBusiness.com, 4/12/10; emphasis added]
"Permanent Bailout" Line Is Straight From Frank Luntz's Pro-Wall Street Memo
[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
U.S. Chamber of Commerce
The Bill Would Dismantle Failing Banks, Not Bail Them Out
Contrary to McConnell'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 4/7/10]
Financial Reform Ends The Bailout Culture, Brings Accountability And Transparency To Wall Street
PolitiFact: "The Bill Would Create A $50 Billion Fund To Help Dismantle Very Large, Faltering Firms...The Money Must Be Used To Liquidate -- Not Keep Alive -- Failing Firms." PolitiFact.com examined Sen. Richard Shelby's claim that Wall Street reform established a "$50 billion slush fund." PolitiFact wrote:
Shelby also implies that the fund comes at a cost to taxpayers, saying the fund "can only reinforce the expectation that the government stands ready to intervene on behalf of large and politically connected financial institutions at the expense of Main Street and the American taxpayer." But remember, the businesses would pay into the liquidation fund, not taxpayers. The bill is very specific about that. So his underlying point here is incorrect.
Shelby is right that the bill would create a $50 billion fund to help dismantle very large, faltering firms. While there may be just a bit of wiggle room on what costs the fund covers, the bill makes it clear that the money must be used to liquidate -- not keep alive -- failing firms. Also, the program is administered by the FDIC, and before it can step in to dismantle a firm, FDIC must have agreement of the Treasury, the Federal Reserve and three bankruptcy judges. So, to say that the fund "is available for virtually any purpose that the Treasury Secretary sees fit," is more than a stretch. We find Shelby's claim to be False. [PolitiFact.com, 4/19/10]
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]