Are GOP Warnings Of Permanent Bailouts True?

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from NPR:

Here's the main talking point in the GOP assault on the financial regulations bill: It would create a permanent, taxpayer-financed bailout system for troubled financial companies. But how accurate is that claim?

GUY RAZ, host:

The accusations against Goldman Sachs come at a politically sensitive moment here in Washington. Congress is in the middle of an intense debate over President Obama's proposed legislation to overhaul financial regulations. Now Republicans are calling the bill a formula for permanent bailout. It's a label they hope will doom the proposal. But Democrats say their bill will end such bailouts once and for all.

NPR's Audie Cornish has our story.

AUDIE CORNISH: Republican leaders have been making assertions like this one about the new financial regulatory bill.

Senator MITCH McCONNELL (Senate Minority Leader; Republican, Kentucky): The bill creates bailout funds, authorizes bailouts, allows for backdoor bailouts from the FDIC, Treasury and the Fed and even expands the scope of future bailouts.

CORNISH: That's Senate Minority Leader Mitch McConnell. McConnell said bailouts four times in one sentence, yet Democrats like Banking Committee Chairman Chris Dodd say McConnell has it exactly backwards.

Senator CHRIS DODD (Democrat, Connecticut): These Wall Street firms, Mr. President, believe that no matter how much we hate bailouts, if they're important enough, at the end of the day, taxpayers will come riding in on a white horse to save them just like they did under the Bush administration. This bill kills the white horse. There is no white horse under this bill.

CORNISH: Instead of the white horse, Democrats say, they'll send failing banks a hearse, otherwise described as orderly liquidation. The bill before the Senate would have regulators flagged failing firms that are big enough to threaten the system. A panel of bankruptcy judges would have 24 hours to review that judgment, then the FDIC or Federal Deposit Insurance Corporation would step in and do, well, what it's always done with smaller banks that fail.

Mr. SIMON JOHNSON (Co-Author, "13 Bankers"): The FDIC comes in, it takes over the bank. It protects the insured depositors and it, generally speaking, wipes out the shareholders and that's not a bailout. Nobody says the FDIC bails you out.

CORNISH: That's Simon Johnson, former chief economist for the International Monetary Fund and author of the book "13 Bankers." Johnson says this kind of intervention is anything but a bailout.

Mr. JOHNSON: They don't bailout or protect management or shareholders or creditors, they impose a loss, actually a very big loss, that's not a bailout. Bailout is when you protect and preserve people.

CORNISH: In 2008, the crisis rescue often left the managers of failing companies in place, protecting creditors and some shareholders as well. The Senate bill proposes to end that strategy, forcing the FDIC to fire the management, make creditors take loses and sell off the troubled firm piece by piece. To cover the cost, the Senate bill would tax the largest Wall Street firms to finance a $50 billion fund.

Democrats say this fund will mean taxpayers aren't on the hook. Republicans say the very existence of such a fund will bring back bailouts. Stanford finance professor Darrell Duffie says that's a stretch.

Professor DARRELL DUFFIE (Finance, Stanford Graduate School of Business): To call it a bailout fund is probably a misnomer because the financial institution would not survive once this $50 billion is dipped into. The $50 billion is to help put it to sleep. So, it's not going to get bailed out. It's going to get resolved or at least that's the intent.

CORNISH: Duffie says he would rather see a power boost for the bankruptcy courts so that they could deal with large scale interconnected firms. And analysts such as Simon Johnson say the bill doesn't do enough to prevent companies from getting so large and dangerously entangled in the first place. But if the bill does get to the floor this month, those issues will likely get less attention than the battle over what constitutes the bailout and who's money will be at stake.

Audie Cornish, NPR News, the Capitol.

http://www.npr.org/t...oryId=126076101

[Pinocchio Liberal 268]

[Dan J 277]

Senator MITCH McCONNELL (Senate Minority Leader; Republican, Kentucky): The bill creates bailout funds, authorizes bailouts, allows for backdoor bailouts from the FDIC, Treasury and the Fed and even expands the scope of future bailouts.

I think he is going for the record of number of sound bites per sentence.

[Pinocchio Liberal 268]

I think he is going for the record of number of sound bites per sentence.

At least he does it without a teleprompter.

[Dan J 277]

At least he does it without a teleprompter.

Not that it matters since he isn't saying anything useful.

[Pinocchio Liberal 268]

Not that it matters since he isn't saying anything useful.

Words are not useful, actions are.Of course the well spoken word means the world to you no matter how vacant it is.

[DEDixon 39]

bottom like is that if regulators were doing their job, this would never have happened.

i feel that a fund basically allows all those regulators that are supposed to be doing their job to relax, because if anything bad happens, the fund to the rescue.

congress and all of the regulators were completely out to lunch during the housing run up. they are our first line of defense and they did absolutely nothing, they didn't raise a finger, no questions whatsoever.

a fund is the wrong way to go because it isn't so much a safety net, but more to allow regulators to be asleep at the wheel.

and this isn't ALL about bush... dems took over congress in 2006 yet i can't remember anyone dem sounding any alarm bells. the blame game ticks me off - everyone at every level in gov't failed miserably.