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The First FinReg Amendment -- a Toothless Measure to End Bailouts

May 3, 2010 - by Donny Shaw

The first amendment the Senate will vote on tomorrow when they start voting on amendments to the financial reform bill will be one from Sen. Barbara Boxer [D, CA] that seeks to ensure that the government will liquidate failing financial firms rather than bailing them out with taxpayer money. If any amendment is going to get wide bipartisan support, it will be this one.

Here’s the full text:

At the end of title II, add the following:


(a) Liquidation Required. — All financial companies put into receivership under this title shall be liquidated. No taxpayer funds shall be used to prevent the liquidation of any financial company under this title.

(b) Recovery of Funds. — All funds expended in the liquidation of a financial company under this title shall be recovered from the disposition of assets of such financial company, or shall be the responsibility of the financial sector, through assessments.

(c ) No Losses to Taxpayers. — Taxpayers shall bear no losses from the exercise of any authority under this title.

Here’a link to where the amendment would fit into the bill. It’s at the end of the “orderly liquidation authority” in the bill.

To a large extent, it’s a symbolic measure only. Outside of the congressionally-approved and Bush-signed TARP law, the government is already required to liquidate failing firms, not bail them out. The problem necessitating the bailouts after the 2008 crisis wasn’t with an ambiguity in the law, but with the fact that the failing financial firms were determined to be just too big and too interconnected to be wound down under the regular order of the law. Boxer’s amendment doesn’t address that issue, though the Democrats claim that other parts of their bill does.

The other way the amendment is shortsighted is that it does not address the Federal Reserve. Best estimates are that $4.66 trillion in taxpayer money has been put up as direct and indirect support for failing Wall Street firms since the crisis. Only $700 billion of that is from the TARP program. The rest is in the form of below-market rate loans, liquidity swaps and other forms of indirect support facilitated mostly by the Federal Reserve.

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