Under financial reforms now proposed by U.S. Sen. Chris Dodd, D-Conn, Washington bureaucrats will decide which financial institutions pose a “systemic risk.” This will now become the new, replacement euphemism for “too-big-to-fail.”
Since the government will be de facto promising to step in should any such firms’ balance sheets turn toxic, investors, guaranteed a bailout in case of trouble, will pour in the money. The firms will get even bigger.
Yes, such anointed institutions might be required to pony up $50 billion — which will ultimately come from higher rates and fees paid by consumers — into a permanent new bailout fund. The government will thus distort the market — again — creating incentives for these bigger-than-ever firms to take reckless risks to increase their returns.
The result? More government bailouts and takeovers.
Even should Democrats drop the $50 billion bailout slush fund, “The Dodd bill codifies the ‘back door’ bailouts used by the Federal Reserve to pump money into Bear Stearns, AIG, Fannie Mae, and Freddie Mac,” warns Rep. Tom Price.
Meantime, Mr. Obama, whose Federal Reserve chief and top financial advisers hail from Goldman Sachs or the Federal Reserve Bank of New York, says anyone who opposes this new “financial regulation” package must be “an agent of the big Wall Street bankers.” Really.
In essence, the Dodd “reform” package would turn America’s largest financial institutions — and, potentially, even non-financial institutions — into regulated public utilities, technically still privately owned and allowed to pay dividends to stockholders, but really required to get Washington’s permission for anything more substantial than switching over the cafeteria vending machines from Pepsi to Coke.
But as Mr. Obama and his party insist this is all about “making sure there will never be a repeat” of the big bailout packages of 2008 and 2009, they completely ignore the ongoing cash hemorrhages at federally guaranteed Fannie Mae and Freddie Mac, which have so far received bailout funds totaling $125.9 billion — with a “b.”
Those operations were created and overseen by the federal government. Is this supposed to give us confidence that federal bureaucrats, not directly answerable to any stockholders or board of directors, with none of their own capital and not even their own job security at risk, will be better able to run banks and other financial institutions than a free-market system which, over the past 400 years, has made America’s the greatest economy in the world?
America had — still has — a great system in place to deal with corporate stupidity or malfeasance. Stockholders elect directors who fire executives who screw up. When normal bankruptcy laws are allowed to function, new entrepreneurs promptly cut up and acquire the remaining productive assets of such stumbling dinosaurs. Meantime, any corporate executive who can be shown to have purposely committed theft or fraud — as in the case of Enron, the only American corporation whose name the socialists now seem able to recall — generally goes to prison.
Has anyone from Fannie Mae or Freddie Mac gone to prison for “misplacing” a hundred billion dollars worth of taxpayer funds?