Senate Banking Committee Chairman Christopher Dodd (D-CT) has made two impassioned, and at times angry, speeches on the chamber's floor in as many days disputing speeches earlier in the week by Senate Republican Leader Mitch McConnell. The minority leader's speeches contained two major objections to Dodd's financial reform: it is a partisan bill and it will impose costs on taxpayers to provide more bailouts. Dodd vehemently disagrees on both points.
Is It Partisan?
In his speech yesterday, Dodd reiterated his bipartisan approach. He explained the process used in the Banking Committee where he divided up the work into bipartisan groups of Senators to tackle. Ultimately, the strategy broke down due to disagreements and delays that frustrated Dodd. So he decided to move ahead without a true compromise. But he did leave in some of the Republican-driven components.
So to call the bill a purely partisan effort is not accurate. Currently, the bill does not have bipartisan support, but Democrats did not draft the bill behind closed doors and tell Republicans they had no say. While Dodd did not necessarily take all of their ideas into account, he did include some of them. Even now, sources indicate that Dodd continues to work with Republicans in an effort to achieve a bipartisan compromise.
This contrasts with the House's financial reform strategy. There, Democrats did draft a bill themselves, which was eventually passed without a single Republican vote. It did have some Republican-led amendments, but any that passed had Democrats on board. Far less effort, however, was exerted in reaching across the aisle to get the House version of the bill done, however. No bipartisan process was employed.
Will It Cost Taxpayers?
Whether or not the Dodd bill provides some wiggle room for the government to still provide bailouts is a debate for a later time. It's a complex question. But even if the bill does provide for a bailout, would taxpayers be on the hook?
According to the text of the "Orderly Liquidation Fund" section of the bill (.pdf), it's hard to see how. Dodd seeks to have the FDIC wind down systemically significant firms -- sort of like they already do for depository institutions. If there are costs in doing so, his legislation orders the regulator to utilize a $50 billion fund. That is paid for through assessments on the very large firms that it could be used to resolve. Again, this is very similar to how the FDIC's depository insurance works. Banks get assessed, and if they fail, then the insurance fund pays back depositors.
And the FDIC's insurance fund costs taxpayers nothing -- so neither should the Orderly Liquidation Fund. Even in the event that a deep financial crisis hits causing the FDIC to burn through its $50 billion and need more cash, it could just temporarily borrow that funding from the Treasury. Once the crisis subsides, it can then assess banks to pay back the Treasury. Taxpayers will not bear the cost.
Dodd spoke Thursday afternoon on this point, saying that McConnell either hasn't read his bill or is intentionally distorting the truth. Dodd also added that the fund was a Republican idea to begin with that he incorporated into the bill. There are reasons why Republicans might object to the way Dodd set up his resolution authority, but worrying about taxpayers bearing the cost of big bank failures doesn't appear to be a legitimate criticism.
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