Tuesday, December 8, 2009

Budget Busting Bailout

This past weekend at the RPV Advance, I had the opportunity to speak, albeit briefly, with Rep. Eric Cantor (VA 7th) the House Minority Whip. I asked him what current legislation, besides Health Care, in the House needs our attention. Without hesitation he told me “Barney Frank’s Budget Busting Bailout, it would make Bank Bailouts permanent.” The really name for this is the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173) and the House of Representatives will begin considering it as early as tomorrow. This bill is a bundle various legislative acts from Compensation Fairness Act, aka “Say on Pay”, to Financial Stability and Enhancing Prudential Regulation, permanent bailouts for failing banks.

This legislation claims to end the “too big to fail” bailout, however what really happens is the federal government is creating an oversight council to monitor the market place to identify stability threats. The Federal Reserve will act as an agent to the council and will have extended powers, but as a trade off the General Accountability Office enhanced authority to examine the Board of Governors of the Federal Reserve and the Federal Reserve Banks to provide greater transparency.

O.k. that sound all well and good, but for those of us who have been paying attention one of the things we have been asking for is to Audit the Federal Reserve, HR 1207. Audit the Fed would be a great first step in providing economic stability. As far as the permanent bailout, if the Council determines that a “big bank” is failing it will have the authority to step in to provide for an “orderly dissolution” of the failing firm. That shareholder and unsecured creditors will bear the losses. If I could interject with the facts, for a minute, isn’t that what happens now?? The market will bear the risk, not the taxpayers. This does not make sense, until you get to the last bullet point on the summary of the bill.

There is no bailouts for failing institutions. If the financial assistance is necessary for orderly dissolution, industry will pay for it.
o A Systemic Dissolution Fund can be used to help wind down failing financial institutions, but not to preserve them. The fund will be pre-funded by assessments on financial companies with more the $50 billion in assets and by hedge funds with more than $10 billion in assets.

TAH DAH… there’s the tax. It will be penalizing large “too big to fail” companies in the event that they might fail. This is like being given a speeding ticket because you might speed.

We must pay attention to this, Please Please Please contact your Representative and tell them to oppose this legislation.

You can read more about this HR 4173 at www.washingtonwatch.com

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