James Pethokoukis writes about Dodd’s Faith-based financial reform
On paper, Democrats have a case to support their convictions. Their bill gives regulators new authority to wind down non-bank financial institutions. Tougher new capital and leverage requirements, as well as limits on risky activities, are supposed to make failures much less likely. A $50 billion bank-financed pool would fund resolution costs — though this whole idea may yet be dropped.
The trouble is, teetering banks and their creditors might still assume that while not too big to sue — as Goldman can attest — Uncle Sam would still think them too big and interconnected to fail. And that’s the problem for many Republicans. The bill tends to favor discretion over hard and fast rules. While the feds would have the authority to shut down institutions, for instance, they wouldn’tbe required to do it. History hints that regulators and politicians will continue to be tempted to rescue banks in a crisis, a point made by several regional Federal Reserve Bank presidents who doubt the efficacy of the Dodd bill.
Remember Nancy Pelosi’s statement “we have to pass the [healthcare] bill so you can find out what is in it”?
Well, here comes the financial reform version of “we have to pass it so you can find out what is in it”:
And those new rules on capital, leverage and risky activities will be spelled out only later by a new systemic risk council. The government would be able to guarantee financial firms’ debt without any automatic triggering of the resolution process. And it’s still fuzzy how the challenge of winding down cross-border obligations and operations would be met.
The Dems idea of any “reform” involves writing a blank check at our expense. Thing is, they have to pass it before you know what’s in it. And they make you pay.