A well-informed friend writes:
For weeks, the Obama administration has been assuring the public that Senator Dodd’s financial regulatory reform bill does not provide taxpayer-funded bailouts. In his April 17 radio address, the President said that the “[the Dodd bill] simply put, means no more taxpayer bailouts…never again will taxpayers be on the hook because a financial company is deemed too big to fail.” President Obama went so far as to call Senator Mitch McConnell “cynical and deceptive” for even suggesting that the Dodd bill allows taxpayer-funded bailouts.
And yet, just this past Sunday, Mr. Dodd himself took a 180-degree turn. In questioning Mr. Dodd during his “Meet the Press” interview, moderator David Gregory highlighted that the proposed legislation provides “a lot of access to government cash that taxpayers pay for if they [banks] get in trouble and if they need more cash.” In his response, Mr. Dodd admitted that the Fed does have the power to make emergency loans, and that he and Senator Richard Shelby were working to “tighten” the language. And then Mr. Dodd stated that the language “is so tight here, in fact, we're down to the point of insisting that Congress be involved in determining whether or not it can go forward. We've never done that before. So it, it's very, very tight, in our view. Whether there’s approval or disapproval, that’s the real argument here.”
There is a lot to digest in that answer. First, if the bill did not use taxpayer funds in the first place, then why does the language need “tightening”?
Second, no amount of language “tightening” changes the fact that if the Fed provides emergency loans, it is using taxpayer dollars.
Third, Mr. Dodd says that the “real argument” is whether Congress has the power to approve the use of such funds. Really? Actually, isn’t the real argument why the Fed or Congress or any government body can make loans or provide guarantees to any financial institution? This is the heart of the debate -- government funds and guarantees for U.S. businesses. Forget whether one person calls it a “bailout” while another person calls it a “loan,” these are dollars and assurances that financial institutions would not have in the absence of government intervention. If you replay the events of September 2008, the emergency powers in the Dodd bill would have allowed the Fed, following Lehman’s failure, to give cash and guarantees to AIG, Goldman Sachs, Morgan Stanley and the rest of the “systemically important” institutions. The bill ensures a repeat of nineteen months ago. So when Dodd says, “we’ve never done that before,” he has an exceedingly short memory.
Writing a bill that allows the Fed to ask Congress for bailout dollars and loans is eerily reminiscent of the mad scramble to request TARP in September 2008. Isn’t Mr. Dodd just going full circle and codifying the exact process that played out in September 2008?