Today in Washington, D.C. - April 16, 2010 - WSJ: Dodd Bill Makes Financial Bailouts More Likely

Yesterday, the Senate voted 59-38 to pass an extension of unemployment benefits, COBRA, and the Medicare doc fix through the end of May, which adds $9.2 billion to the deficit. Prior to passage, Democrats rejected two more amendments from Sen. Tom Coburn (R-OK) to pay for the bill.

Also yesterday senators voted 85-13 to approve an amendment from Sen. John McCain expressing the sense of the Senate that a value-added tax should NOT be implemented.  Twelve Democrats and one Republican voted that maybe we should consider a VAT Tax.  Even Harry Reid (D-NV) up for election in Nevada vote yea.  Reid is either is running scared since he is far behind in the polls, or he missed the word "NOT" in the resolution, or the VAT proposal was run out early by the administration as a "red herring" to give the democrats who are up for election cover by being able to say we are not for the VAT tax. 

Regarding the financial regulation bill, The Washington Post details, “GOP leaders have continued to insist that the bill . . . is little more than a way to solidify the United States as a bailout nation. Behind all the fiery rhetoric lie serious policy disagreements over Dodd’s legislation. Senior Republican Senate aides on Thursday held a call with reporters to detail their arguments that the bill leaves open the possibility of future bailouts. They said the current language would allow the Federal Deposit Insurance Corp. to pay certain creditors above what they would have gotten in a bankruptcy proceeding. That provision, Republican aides said, could lead to ‘highly political’ decisions to favor certain creditors."

The Wall Street Journal editors note today:

"The main author of the Senate bill, Chris Dodd of Connecticut, says the latest draft of his bill to reform financial regulation ‘will end bailouts.’ We wish that were true. This evolving legislation still allows regulators to deploy unlimited sums to rescue financial giants, and with too much discretion. . . .

The bailouts of 2008 make it all the more important that any reform sends a clear message to bankers and creditors that excessive and mistaken risks will be punished with failure. The moral hazard that has built up in the system has to be addressed. The Dodd bill, instead, still gives regulators the authority to rescue essentially the entire financial industry. While much debate has centered around the FDIC’s new ‘resolution’ authority for failing firms, there’s been almost no discussion around a separate FDIC program under which the agency can guarantee corporate debts.

[What does this mean?] [It's] an even more explicit taxpayer backstop than anything Fannie Mae and Freddie Mac enjoyed during the housing bubble, and one that’s available to a virtually unlimited number of firms. Federal regulators can create a ‘widely available program’ to guarantee the debts of not just banks, but their parent companies as well, and all of their affiliates. Fannie and Freddie were rolling the dice with an implied backstop, but this legislation would allow regulators, without a vote of Congress, to explicitly put the full faith and credit of the U.S. government behind Goldman Sachs, JP Morgan and Morgan Stanley, among others."

Sen. McConnell (R-KY) said on Wednesday, "It’s almost as if the people who wrote this bill took the pulse of the American people and then put together a bill that endorses the very things they found most repugnant about the first bailout. . . . It should go without saying that this isn’t the kind of approach most Americans want in Washington. And it’s not the kind of approach they were told they could expect from this administration."

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Tags: Washington, D.C., US Senate, bank bailout, unemployment benefits
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