A Year Later, Rep. Pence Still Lying About Imaginary "Permanent Bailout Authority" In Wall Street Reform Bill
Last January, Republican message maven Frank Luntz released a memo advising the GOP that "the single best way to kill any legislation is to link it to the Big Bank Bailout." With Democrats pushing to reform the casino-style practices on Wall Street that led to the recession, Republicans dug in and attacked the effort as a "permanent bailout" at every opportunity, but the bill became law last July. Now Republicans are talking about repealing the bill, and recycling the "permanent bailout" lie in the process. Today on C-SPAN, Rep. Mike Pence (R-IN) used Luntz's language to call for repeal, but the fact remains that the law actually ends the bailout culture — which is why Wall Street started giving money hand-over-fist to Republicans like Pence in the last election cycle.
Rep. Pence Lamented "Permanent Bailout Authority" In Dodd-Frank Reform Bill
Rep. Pence: Dodd-Frank Bill Is "A Permanent Bailout Authority." Appearing on C-SPAN's Washington Journal, Rep. Mike Pence (R-IN) said: "We're doing the wrong things. The Dodd-Frank bill that was just signed into law with a broad range of new financial regulations actually made permanent the power within the federal government to practice the principles of too-big-to-fail. Without ever having to come to the Congress in the future, future administrations will have the ability to save firms that they determine to be too big to fail. Well to me that's a, that's a permanent bailout authority, and it takes us in exactly the opposite direction of personal responsibility. [...] And lastly, I do believe, as I said to the early-the first question, I think-we have got to get back to the notion that the freedom to succeed has to include the freedom to fail, and that repealing Dodd-Frank, or at least repealing those aspects of Dodd-Frank that make permanent the policies of too-big-to-fail, I think will be essential toward ensuring that that principle is back at the center of the American marketplace." [C-SPANVideo.org, 1/12/11 @ 31:45]
The Dodd-Frank Wall Street Reform And Consumer Protection Act Doesn't Bail Out Failing Financial Firms — It Liquidates Them
Dodd-Frank Reform Bill Ended The Bailout Culture By Creating An "Orderly Liquidation Authority" To Dismantle Failed Financial Entities. According to Section 204 of the Dodd-Frank Wall Street Reform and Consumer Protection Act:
[Dodd-Frank Wall Street Reform And Consumer Protection Act via GPO.gov, accessed 1/12/11]
- Dodd-Frank Bill's "Orderly Liquidation Authority" Uses Funds From Banks, Not From Taxpayers. As reported by Ezra Klein of the Washington Post: "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." [Washington Post, 4/20/10, emphasis added; Note: Klein's piece references "Section 210, subsection (n)" of the bill; in the final law signed by President Obama, this language can be found in Section 210, subsection (o).]
The "Permanent Bailout" Line Is Straight Out Of 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
...But Experts And Analysts Agree: The Bill Ended Taxpayer Bailouts
PolitiFact: "Bank Bailouts Not In Bill." Responding to a claim by Sen. Mitch McConnell that Wall Street reform would lead to future bailouts, PolitiFact wrote:
In ruling on McConnell's statement, that financial reform "actually guarantees future bailouts of Wall Street banks," we base our ruling primarily on the legislation. It clearly states that the intention is to liquidate failing companies, not bail them out. To do that, it creates a fund with contributions from financial firms, not from taxpayer funds. We do not see any element of the bill that expressly permits ongoing, "endless" outlays from the federal treasury. Is it possible that liquidation may cost the government money, potentially more money than is allowed for in the bill? Yes. But even so, McConnell is using seriously overheated rhetoric. Nothing in the bill "guarantees" future bailouts of Wall Street banks. We rate his statement False. [PolitiFact.com, 4/20/10]
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 theWall 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 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." [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]
Wall Street Agrees Too: They Gave The Vast Majority Of Their Campaign Dollars To GOP Because Of Democrats' Regulatory Push
Center For Responsive Politics: Wall Street's "Shift Away From Democratic Candidates ... Coincides With Democrat-Driven Financial Reform Legislation." According to the Center for Responsive Politics:
Financial firms and the people who work for them are increasingly donating their political cash to Republicans, according to a preliminary Center for Responsive Politics analysis of second-quarter federal campaign finance data.
The Center's preliminary study indicates that political action committees and individuals associated with the broad finance, insurance and real estate sector have given more money to federal-level Republican interests during every month since December. The gap continued to grow during that time, reaching its widest point in June.
Such a shift away from Democratic candidates -- darlings of Wall Street interests for much of 2009 -- coincides with Democrat-driven financial reform legislation that President Barack Obama signed last month.
Contribution trends toward Republicans is particularly pronounced in the securities and investment industry, the Center finds. [OpenSecrets.org, 8/10/10; emphasis added]
The Center for Responsive Politics included the following graph to illustrate the shift in Wall Street donations from Democrats to Republicans:
Reuters: Wall Street "Turning Against Democrats By Shifting Campaign Contributions To Republicans" Because Democrats Pushed Financial Regulations. According to Reuters: "Wall Street executives who endured two years of blame for the U.S. financial crisis and now face costly industry reforms are turning against Democrats by shifting campaign contributions to Republicans. Long a reliable source of big contributions for Democratic coffers, financial institutions in New York, Chicago and San Francisco are dialing back donations and vowing to shun lawmakers who pushed for the toughest provisions as reform moved through Congress to President Barack Obama's desk. ... Since the House of Representatives approved its version of financial reform last December, top Wall Street firms have cut their contributions to Democratic candidates for the House and Senate by 7 percentage points." [Reuters, 7/27/10, emphasis added]
For Political Correction's previous coverage of the GOP's efforts on behalf of Wall Street to block reform, and of Wall Street's subsequent campaign contributions to Republicans, visit our Wall Street Reform page.