Not that I am surprised to see editorial garbage floating around over at Investor’s Business Daily (I read it so you don’t have to), but Rep. John Boehner’s attempt to put Republicans on the side of taxpayers in the fight for financial reform is one of the worst I have seen in a while. That his version of events is so conflicted with the real world makes his ignorance even more painful to read. I’ll comment:
President Obama talks a big game when it comes to Wall Street, but his newest job-killing initiative would provide the nation’s largest financial firms with permanent bailouts ordered and overseen by unelected federal bureaucrats.
Under his proposal, the largest Wall Street firms would become eligible for special treatment, including taxpayer-funded resources unavailable to smaller financial firms. These include exclusive access to a pre-existing bailout fund, a Treasury-backed line of credit and a government guarantee for any debt.
Such perks will benefit the likes of Goldman Sachs, President Obama’s top financial contributor during the 2008 campaign and a firm that just happens to be under investigation by the SEC for defrauding investors.
The proposal in question is a pre-funded resolution authority. This is nothing like TARP. Rortybomb has posted a statement by Rep. Luis Gutierrez that summarizes this position:
I wrote the dissolution fund language in the House and the Financial Services Committee amendment that included it in H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009 and I will unequivocally state today what I said back then: this fund does not bail anyone or anything out. Instead, it was created to pay for any costs associated with the ultimate failure of the firm. The money in this fund comes from risk-based assessments charged to the riskiest financial firms proportionate to the risk they pose the financial system. The funds can only be used if the regulators make a determination that the firm cannot survive and bankruptcy is not an appropriate option for its failure.
For an analogy everyone can understand: this is not an auto repair shop where you take your car to get it fixed by a mechanic so you can drive it back home. This fund is a junkyard where you take your car to be torn apart and sold for scrap.
Read again: ultimate failure. Over. Finished. Done. Gone. Out. Shareholders wiped out. Bondholders getting whatever proceeds they can upon liquidation with many creditors getting completely wiped out. Under this scenario, select banks pay into the fund with the intent to shield taxpayers from having to bear the cost of the failure of a systemically significant firm. People who opposed TARP and wish for Wall Street to bear responsibility for any future acts which could threaten the financial system, a likelihood at some point, should support such an initiative.
Instead, Rep. Boehner has the audacity to accuse President Obama of cozying up to Wall Street (going so far as do name drop Goldman Sachs) by giving them preferential treatment while putting the taxpayers at risk while Republicans like him have been actively attempting to undercut financial reform, which caters to Wall Street interests and will put taxpayers at risk in the event of a future crisis, and vigorously defending Goldman Sachs against the SEC’s charges. That he refers to the resolution authority as a “perk” demonstrates that he has no understanding of what resolution authority is supposed to.
Rep. Boehner is a textbook case that demonstrates if one’s understanding of the financial crisis are limited to “the government did it” (i.e. Fannie and Freddie, amongst other popular scapegoats), then the chances that they will make a meaningful contribution to the financial reform debate are slim.