Senate Majority leader Harry Reid announced a motion to proceed on financial regulation reform for April 26th which will need 60 votes to bring cloture and begin debate. Like the health care bill, the Democrats will need one Republican to cross over to their side for this to happen.
While the two sides are moving closer and closer, there is tremendous pressure being brought to bear on the Republicans from President Obama’s frequent appearances and speeches to Sen. Dodd’s appearances on CNBC and on NBC's "Meet the Press" this weekend. One major issue I’d like to see David Gregory discuss is bailout authority. Dodd today insisted it’s gone in the current bill.
However, there are still several places where it occurs. While this is a heavy duty inside-the-beltway item, it has everything to do with whether the US government will be able to continue to prop up zombie institutions or pick winners and losers in the private sector.
It’s all about language. Whenever you see “may” do something, it needs to be written as “shall.” Whenever you see “may not”, it needs to be “shall not.” This is the legal terminology for eliminating ambiguity and reducing legal counsels from stretching the boundaries for authority.
In a letter to Treasury Secretary Geithner from Sen. Richard Shelby, Shelby goes over the areas that contain this bailout authority. Here are just three of his examples:
- The Federal Reserve would determine whether collateral is satisfactory for emergency lending and they could provide widespread bailouts by making emergency loans against bad collateral.
- The bill grants emergency authority to the FDIC and Treasury to provide broad debt guarantees in times of “economic distress” when firms face a “liquidity event”. “Because defaulting guarantee recipients are not required to be placed into FDIC receivership, bankruptcy, or resolution, this broad authority would give the FDIC and Treasury a backdoor way to prop up failing institutions.”
- The $50 billion fund for resolving failing firms is “available for virtually any purpose that the Treasury Secretary sees fit.” According to Shelby, this reinforces the expectation that the government stands ready to intervene on behalf of large and politically connected financial institutions at the expense of Main Street firms and the American taxpayer.”
While the President and Sen. Dodd continue to insist this authority doesn’t exist, Sen. Shelby makes a clear case that it does. These areas will need to be resolved or the Democrats will be pretending they have resolved bailouts to ensure Republican support to end debate.
Andrew B. BuschDirector,