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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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  • textdog 05/03/2010 5:12pm

    some amendments are tackling the issue of too-big-to-fail and bailouts more adequately — Brown-Kaufman is the amendment that gets at the root issue of being too big to regulate, too powerful to be stopped. this time, we have a chance to bring the big guys down to a size that is more manageable and won’t take over our markets and politics.

    this is the week to push for it — if you support ending too big to fail, please show your support because it’s the only chance we got to break it up!

    breaking up the banks is a real possibility — please help make it possible!

  • hexC0DE 05/03/2010 6:32pm

    “too big to regulate, too powerful to be stopped.” — sounds like you are describing the federal govt… which has recently expanded at a level that dwarfs previous expansions. this bill only furthers that expansion.

    the real bank we need to worry about and begin to liquidate, is the central bank. End the Fed!

    (nice post Donny)

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