On July 21, Mr. Obama said that “there will be new rules to make clear that no firm is somehow protected because it is ‘too big to fail,’ so we don’t have another AIG.” But under the new law, firms deemed too big to fail by the new Financial Stability Oversight Council can be protected from bankruptcy, if regulators so desire, and instead put into an alternative process managed by the FDIC. The idea is to provide the firm with taxpayer cash that would not be available in a bankruptcy, and then try to recover the taxpayer’s money over time from sales of the company’s assets.

If the taxpayers don’t come out whole, Plan B is to seek money from the firm’s other creditors after the crisis has passed. Failing that, the government will assess fees across the financial industry, including firms that had nothing to do with the failure. Regulators and the bill’s authors have unanimously agreed not to call this a bailout program.

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This week we reported on an analysis by the Davis Polk & Wardwell law firm that at least 243 new federal rule-makings are on the way, not to mention 67 one-time studies and another 22 new periodic reports. The attorneys were careful to note that this was a low-ball estimate, counting only new regulations mandated by the bill.

Now comes Tom Quaadman of the U.S. Chamber of Commerce, who doesn’t quarrel with the Davis Polk estimate but has added rule-makings authorized by this legislation to those that are mandated and says that American businesses should expect a whopping 533 new sets of rules. To put this number in perspective, Sarbanes-Oxley, Washington’s last exercise in financial regulatory overreach, demanded only 16 new regulations. Thus he reasons that Dodd-Frank “is over 30 times the size of SOX.”

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Because this tax will be collected by the Federal Deposit Insurance Corporation, even opponents of the bill have viewed it as part of an insurance system. It isn’t. Insurance is when you pay a premium and the insurance company agrees to replace your house if it burns down. A tax is when you pay the government and then the government decides which houses it wants to replace when there is a fire in the neighborhood.

Under Dodd-Frank, if Firm A pays to cover the cost of the last bailout, there’s no guarantee that the FDIC will rescue its creditors if Firm A fails in the future. This is fundamentally different from traditional deposit insurance, which guarantees the same deal for every bank customer. Dodd-Frank allows the FDIC to discriminate among creditors at its discretion.

This transfer of wealth is a tax by any reasonable definition, borne by the customers, shareholders and employees of the companies ordered to pay it. Is this how Mr. Brown plans to reward the tea partiers who carried him to victory last winter in Massachusetts? Is this the key to a small business rebound in Maine?

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Chris Dodd and Barney Frank, those Fannie Mae cheerleaders, played the largest role in writing the bill. Congressman Paul Kanjorski even offered a motion to memorialize it as the Dodd-Frank Act. It’s as if Tony Hayward of BP were allowed to write new rules on deep water drilling.

The Federal Reserve, which promoted the housing mania and failed utterly in its core mission of monitoring Citigroup, will now have more power to regulate more financial institutions and more ability to dictate the allocation of credit.

The Treasury, which bailed out institutions willy-nilly without consistent rules, will now lead the Financial Stability Oversight Council that will have the arbitrary power to define which financial companies pose a “systemic risk” and which can be shut down without recourse to bankruptcy. Willy-nilly will now be the law.

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June 17 (Bloomberg) — To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

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It’s good news there’s now bipartisan agreement that the financial reform bill should not be a “bailout bill,” and that amendments to Connecticut Sen. Chris Dodd’s draft legislation are being proposed and debated with this agreement in mind. The biggest challenge in this bailout reform debate is to avoid giving the federal government more discretionary power, whether by creating a special bailout fund or by providing more ways to bypass proven bankruptcy rules. Experience shows that such power would increase, not decrease, the likelihood of another crisis.

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“Senate Democrats need to stop lying to the American people about what is in this legislation. The Boxer amendment will do nothing to prevent unlimited bailouts to creditors that will ultimately be paid for by the American people,” said Wilson.

“Senator’s Boxer’s amendment is being presented as if it removes the unlimited bailout authority from the Dodd bill, but it leaves in place the ability of the government to put a company into receivership, fully compensate its creditors and recapitalize it, all with the bailout fund, which the amendment will not remove from the bill,” Wilson explained.

“Then, the bailed-out company, under a new name, could be sold back to the creditors who were already bailed out from the fund in the first place,” Wilson added. “That’s a bailout.”

The Boxer amendment states that any company put into receivership by the Federal Deposit Insurance Corporation (FDIC) must be “liquidated,” but in an oped published this morning, Wilson wrote, “the ‘orderly liquidation fund’ is so broadly established that it even allows the FDIC to operate any company while in receivership, including all staffing decisions and the composition of the board of directors.”

The oped continues, “The FDIC could [also] reorganize the company as a ‘bridge financial company,’ whose board of directors is appointed by the FDIC, and the ownership of the company transferred to the new company by the FDIC. The new company, at the discretion of the FDIC, can then issue capital stock and securities.”

Wrote Wilson, “That is a lot more like a Chapter 11 reorganization of company than a Chapter 7 liquidation, except that it can be completely financed by the unlimited fund. That’s because it’s a bailout.”

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Senate Minority Leader Mitch McConnell (R., Ky.) said the logjam broke after Republicans were given “assurances” by Democrats that “changes will be made to end taxpayer bailouts and the dangerous notion that certain financial institutions are too big to fail.”

Connecticut Sen. Christopher Dodd, the Senate Banking Chairman, and Alabama Sen. Richard Shelby, the panel’s senior Republican, have been meeting for days, ultimately agreeing to jointly support new powers for the government to break up a failing financial company.

Mr. Dodd agreed Wednesday to drop the $50 billion fund designed to pay for the liquidation of a failed firm. That money would have been collected in advance from large financial firms. Republicans had criticized the fund, saying it amounted to a permanent bailout fund that would weaken market discipline.

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