Hope the bailouts are behind us? Well, the new financial reform bill proposed by Sen. Chris Dodd would actually make them matter of ordinary policy. The Heritage Foundation explains why:
Increases Chance of Future Bailouts: Obama administration officials are claiming their plan “outlaws bailouts,” but in fact it institutionalizes them forever. Just go straight to page 134 of the 1,334 page Senate bill. On that page begins a section titled “Funding for Orderly Liquidation.” The text reads that the Federal Deposit Insurance Corporation, the designated federal receiver for failing financial firms, “may make available…funds for the orderly liquidation of [a] covered financial institution.” Where are those funds to come from? Well, on page 272 the bill creates an “Orderly Resolution Fund” within the U.S. Treasury. The target size of this fund? Fifty billion dollars. The Obama administration claims no funds could be provided to compensate a firm’s shareholders. But the failing firm’s other creditors would be eligible for a cash bailout at the discretion of Treasury Secretary Timothy Geithner who has described the bill’s new bailout authority in exactly the same way he described how he bailed out AIG. This is why Rep. Brad Sherman (D-CA) told Politico: “The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.”
The bill would also shift costs for paying back the bailouts onto consumers and ironically, would create a new Bureau of Consumer Financial Protection which would limit choices for consumers. Click here to read more.