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Public Statements

Senate Regulatory Reform Legislation Includes Permanent, Unlimited Bailout Authority

Floor Speech

By:
Date:
Location: Washington, DC

Mr. Speaker, I rise to comment on the regulatory reform bill pending before the Senate.

Senator Dodd has brought a bill that will provide for consumer protection, higher capital requirements, and the regulation of derivatives. We need all that. But we have to ask the question, does the Senate draft increase or decrease the statutory authority of the executive branch to bail out Wall Street giants and their creditors and counterparties?

Unfortunately, the current draft of the Senate bill increases bailout authority. It provides, first, in Section 210, for the use of taxpayer money when an insolvent institution is to be liquidated in order to protect the counterparties and the creditors of that institution.

Now, Senator McConnell has gone even further in the pro-bailout direction. He has criticized the fact that the Senate bill has a $50 billion advance fund collected from Wall Street which would be used before any amounts would be borrowed from the taxpayer. So Mr. McConnell says do away with the fund but he barely comments on the taxpayer borrowing. The results will be that the Federal Government, when it liquidates one of these Wall Street giants, will be borrowing the first dollar from the taxpayer.

We certainly don't need a circumstance where we are lending money in order to bail out the creditors and counterparties of giant and improvident financial institutions and we haven't even collected any of that money in advance. The House bill provides strict dollar limits on the amount that can be borrowed from the Treasury and sunsets this borrowing authority in 2013.

Section 1155 of the Senate bill allows the executive branch to put unlimited taxpayer dollars at risk in order to guarantee the obligations of solvent banks. Now, the Senate bill does say that you can have this resolution of disapproval come before the Congress, but a resolution of disapproval is a phony device designed to give the illusion of congressional control. What it says is that in order to stop a hundred billion dollar transfer of our taxpayer money to Wall Street, you would need a vote in the House and a vote in the Senate; then it would be vetoed by the executive branch; then even if you had an overwhelming vote in the House, as long as 34 Senators were in favor of the bailout, the bailout would go forward. A resolution of disapproval is the illusion of congressional control. Instead, we should follow the House approach by putting a dollar limit on this emergency financial stabilization, and we should sunset all authority under it in the year 2013. Just as important is the existing Section 13-3 of the Federal Reserve Act. Since 1935, the Federal Reserve has had the power, and this is enormous, to lend any amount of money to just about anybody so long as they think they have adequate security.

Now, the Fed has already used this statutory authority to lend upwards of $2 trillion. So if we're against bailouts, we've got to ask, what limits does the Senate bill place on Section 13-3 authority? It provides only some minimal limits, requiring that that authority be used not to bail out just one company on Wall Street, but to be systemwide.

Instead, the Senate can learn from the House bill to put dollar restrictions on this authority, and to provide that the security must be so good that we have a 99 percent likelihood of repayment.

Even better yet, we ought to simply repeal Section 13-3.

Finally, ``too big to fail'' is too big to exist. In the House bill, we authorize the regulators to break up institutions that are too big to fail. The Senate, I believe, has basically ignored this House provision. They should not only embrace it, they should go much further. They should require the break-up of any institutions whose liabilities to American persons exceeds 1 percent of the U.S. GDP.

There is no reason that a bank has to be over $140 billion in size. And if they are, they ought to be at least as smart as an amoeba. When an amoeba gets too big, it divides itself into two separate cells. Banks can do the same.

In conclusion, the people of this country want to give the executive branch the power to nail Wall Street firms, to require regulations of derivatives, higher capital requirements, and to liquidate them when they get themselves into trouble and pose a risk to the entire economy.

But the American people don't want to bail. So let's provide nail authority without bail authority.


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