One sign that the White House financial reform is less potent than its advertising claims is that it doesn’t even attempt to reform the two companies at the heart of the housing mania and panic, Fannie Mae and Freddie Mac. So we’re glad to see that yesterday GOP Senators John McCain, Richard Shelby and Judd Gregg introduced a Fan and Fred reform amendment that will let Democrats show if they’re serious about reducing reckless lending and taxpayer risk.
Taylor: Bankruptcy Best Option for Failing Firms, Not Bailouts in Dodd Bill
By JOHN B. TAYLOR
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.
ALG: Boxer Amendment “Does Nothing to Prevent Future Bailouts”
May 3rd, 2010, Fairfax, VA—Americans for Limited Government President Bill Wilson today dismissed an amendment offered by Senator Barbara Boxer (D-CA) to the financial takeover bill as “doing nothing to prevent future bailouts, and instead will guarantee that they occur.”
“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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