Goldman Sachs Bribed Senate To Pass Bailout Bill – Dodd / Frank Bill extends Bailouts forever!

Is Financial Reform Actually Bailout Infinity?

Permanent Bailout Authority: The Dodd-Frank bill creates an “orderly liquidation” process by which regulators are empowered to seize financial institutions that they believe are in danger of failing and liquidate them. While the lack of a broadly accepted process for closing down large financial institutions helped lead to the massive bailouts of 2008 and 2009, this liquidation process is problematic. Federal regulators are granted broad powers to seize private firms they feel are in danger of default, and these powers are subject to insufficient judicial review. Such governmental discretion to seize private property is constitutionally troubling.

Trusting the Same “Regulators” that Failed Last Time: The legislation establishes a new 10-member Financial Stability Oversight Council composed of regulators that would be responsible for monitoring and addressing system-wide risks to the financial system. This council would also have nearly unlimited powers to draft financial firms into the regulatory system and even force them to sell off or close pieces of themselves. Unfortunately, it is extremely difficult to detect systemic risk before a crisis has occurred, and the council would serve mainly as a group to blame for failing at an almost impossible task. On the other hand, its huge powers are much more likely to destabilize the financial system by stifling innovative products while failing to detect dangers posed by existing ones.

Brand New Innovation Killing Regulators: The bill also creates a new Bureau of Consumer Financial Protection with broad powers to regulate the financial products and services that can be offered to consumers. The new agency would nominally be part of the Federal Reserve System, but it would have extraordinary autonomy. This autonomy would impede the efforts of existing regulators to ensure the safety and soundness of financial firms, as rules imposed by the new agency would conflict with that goal. For many consumers, this would make credit more expensive and harder to get.

Micromanaging the Market: The conference committee also added a form of the “Volcker rule” which would largely prohibit any bank or other institution with FDIC-insured deposits from undertaking proprietary trading or from owning or sponsoring hedge funds or private equity funds. While the legislation does reject the near-total ban on such investments, the difference between legitimate and traditional activities and those the Volcker rule seeks to ban would be difficult, if not impossible, to determine. Attempting to do so would require an intrusive, expensive regulatory compliance system that by its nature would micromanage day-to-day activities.

Fannie and Freddie Forever: Despite much rhetoric about ending bailouts, the bill does nothing to address Fannie Mae and Freddie Mac, two of the largest recipients of federal bailout money. These two government-sponsored enterprises, now in federal receivership, helped fuel the housing bubble. When it popped, taxpayers found themselves on the hook for some $150 billion in bailout money. The failure to address their future is a serious error and shows just how hollow are claims that this agreement will prevent future crises.

Dodd-Frank Made No Structural Changes to Banking System

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All Senators Should Watch Their Claims About Ending Bailouts