A financial regulatory reform bill is needed to prevent taxpayers from having to bail out "too big to fail" investment banks in the future, Austan Goolsbee, chief economist of the White House Counsel on Economic Advisors, told CNBC Tuesday.
Goolsbee said it is “totally misleading” for Republican leaders to label the proposed financial reform legislation as a “perpetual” bailout bill.
“It absolutely outlaws bailouts,’’ Goolsbee said. “It requires, if they get in trouble, either liquidation or breaking them up and selling them off in pieces, shareholders wiped out and management fired."
Goolsbee is in New York as the Obama Administration prepares for its big push to support the bill. As part of that effort, President Barack Obama will be speaking in New York on Thursday. That's when Senate leaders will present the bill.
The proposed legislation has been criticized by the GOP, including Mitch McConnell, the Senate Republican minority leader, who said Monday he was concerned the bill would put “taxpayers on the hook” for a failed institution. The federal government spent $750 billion to bail out the big banks in the Troubled Assets Relief Program (TARP) in 2008.
Goolsbee insists there will be no “propping you up” in this bill.
“You die and there’s only money for your funeral expenses,” he said.
The failures of companies would not have occurred if the proposed bill was in place, said Goolsbee, adding, “It was terrible. We never should have got to that point.”
President Obama will be coming to New York Thursday to push for the bill, slated to come to the Senate floor later that day. It is expected it will be debated next week.
Goolsbee also said that the government deserves some credit for the healthy earnings being reported by financial insitutions such as Citigroup and Goldman Sachs .
“There should be some admission of (the support the banks received from TARP) before they pat themselves on the back and give themselves big bonuses,” Goolsbee said. “Someone ought to recognize the intervention from the government saving their bacon.”