Monday, April 26, 2010

Dodd Bill Sends Wrong Signal To Wall Street By Rep. Mike Pence



The American people are tired of the borrowing, spending and bailouts that have been advanced by the administrations of both political parties. It's time to end the era of bailouts and reaffirm our belief that the freedom to succeed must include the freedom to fail.

Unfortunately, under the guise of financial services reform, congressional Democrats are trying to pass a permanent bailout bill for the financial services industry, ensuring that American taxpayers would be on the hook to bail out reckless Wall Street firms well into the future. Despite claims to the contrary, even some Democrats admit that it would be a permanent bailout.

Don't just take my word for it. California Congressman Brad Sherman, a senior member of the House Financial Services Committee, told Politico recently that the financial reform bill proposed by Senate Democrat Chris Dodd "has unlimited executive bailout authority. . .. The bill contains permanent, bailout authority."

Specifically, the Senate bill provides for a $50 billion resolution fund, created with taxes on financial institutions. Consumers, including families, small businesses and family farms, would pay that $50 billion through higher costs for credit products. Then, regulators would be able to use this fund to pay off the creditors of those failing firms, similar to the backdoor bailout of Goldman Sachs with money the Fed gave to AIG.

That means families on Main Street would still be paying to bail out firms on Wall Street.

The Democrats would also keep "too big to fail" alive by authorizing the Federal Reserve to regulate firms that are considered "systemically important." This special regulatory structure will send a clear signal to the markets, indicating that those firms have the implicit guarantee of the U.S. government. This will permanently distort the financial markets, providing advantages for those select firms to the detriment of small ones.

While Democrats perpetuate a scheme to make taxpayer-funded bailouts permanent, Republicans are offering better solutions. Last year, House Republicans introduced the Consumer Protection and Financial Regulatory Enhancement Act. The Republican bill would end bailouts once and for all, restore market discipline and keep taxpayers off the hook for Wall Street's bad decisions.

Republicans would also provide for the orderly but necessary liquidation of failing non-bank financial firms by creating a new chapter in the bankruptcy code. And, the Republican plan would establish a board of outside experts and financial regulators to analyze the financial system and ensure that government is smarter and more efficient in its regulatory work.

We believe that there are already enough federal agencies. What we need is consistent enforcement and accountability through a system that is modernized to end redundancy.

Finally, a chief cause of the financial crisis was the failed policies of Fannie Mae and Freddie Mac. While Democrats do nothing about Fannie and Freddie, Republicans have a much-needed exit strategy to privatize them within four years. It would end the current model, which gives profits to Fannie and Freddie's executives while leaving taxpayers with the losses.

Regulating the financial services industry is a complex issue that requires more than empty slogans. Republicans have free-market solutions that will create jobs and protect taxpayers without putting hardworking American taxpayers on the hook for one more Wall Street bailout.

• Pence represents Indiana's 6th Congressional District and is chairman of the House Republican Conference.

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