President Obama’s Permanent Bailout Fund
Frank Luntz has created a firestorm with the release of a document “The Language of Financial Reform” where he outlines messaging points about the financial reform ideas pending before Congress. The left is in a fury over this memo, yet the memo seems to correctly allege that the financial reform measures pending before Congress contain a permanent bailout authority and fund for the federal government. A source in the Senate tell me that allegations of a permanent bailout fund in both the House and Senate versions of the legislation are “largely correct.”
Sam Stein of the Huffington Post writes:
In a 17-page memo titled, “The Language of Financial Reform,” Luntz urged opponents of reform to frame the final product as filled with bank bailouts, lobbyist loopholes, and additional layers of complicated government bureaucracy.
The American people, and Tea Party participants in particular, are mad about politicians bailing out Wall Street, AIG (in addition to a potential coverup of information relating to that bailout), car companies and using TARP monies as a means to set up a permanent authority for the federal government to engage in crony captitalism. If Luntz’s allegations are true, then he should be lauded by those who believe that the last thing the federal government should do is establish a permanent authority for the federal government to bail out failing firms. Critics of Luntz are having a hard time arguing that the legislation pending before Congress does not set up a mechanism for the federal government to bailout and sieze institutions that they deem to be threats to the economy.
Elite politicians ignored the American people and are still trying to pass ObamaCare. They are not listening to the American people and these elites are contemptuous of those who distrust the federal government as CEO of Wall Street firms. The American people need to look critically at the Luntz memo to see if he is correct and if it is true that this legislation is granting the federal government the right to bailout and take over banks and other financial institutions with no input from the average American. I wrote a piece for the web site Big Government where I argued that Congress was creating a Big Brother for Wall Street on November 14, 2009 based on a Senate discussion draft of the financial reform bill. That draft contained langauge that resembled permanent bailout authority for the federal government.
The discussion draft “prevents excessively large or complex financial institutions from bringing down the economy” by “creating a safe way to shut them down.” They create a “Agency for Financial Stability” to be government entity to replace the free market forces. If these banks fail, they will avoid a bankruptcy proceeding, like any other business, and their creditors and trading partners will be bailed out by the federal government. If you liked the Bailout of Wall Street, then you will love this legislation because it makes permanent a mechanism to place these private entities into a federal receivership (government control) then bail out the people doing business with them under the promise of the cost “ultimately be charged to financial firms.” A senior Senate staffer on financial service issues tells Big Government that this provision “treats financial companies different from everybody else – everybody else has to go to bankruptcy.”
On December 11, 2009, the House passed Congressman Barney Frank’s (D-MA) bill (H.R. 4173) on a 223-202 vote. The 1705 page bill has language in Section 1109 titled “Emergency Financial Stabilization.” The below langauge that has passed the House enables a “Financial Services Oversight Council,” after certification by the Secretary of Treasury and the President, to create a widely available bailout out program.
(a) IN GENERAL.—Upon the written determination of the Council that a liquidity event exists that could destabilize the financial system (which determination shall be made upon a vote of not less than two-thirds of the members of the Council then serving) and with the written consent of the Secretary of the Treasury (after certification by the President that an emergency exists), the Corporation may create a widely-available program designed to avoid or mitigate adverse effects on systemic economic conditions or financial stability by guaranteeing obligations of solvent insured depository institutions or solvent depository institution holding companies (including any affiliates thereof), if necessary to prevent systemic financial instability during times of severe economic distress, except that a guarantee of obligations under this section may not include provision of equity in any form.
Luntz makes the claim that the bill contains a permanent bailout fund for Wall Street. The above language seems to validate that concern. He further argues that the taxpayers may be on the hook for $4 trillion in bailout liabilities. Remember that President George W. Bush’s bailout, on paper, was a mere $700 billion, yet this legislation may put taxpayers on the hook for $4 trillion. That number is more that President Obama’s whole budget for Fiscal Year 2011 submitted to Congress this week.
Supporters of the new bailout authority may want to investigate Luntz’s claims to see if the taxpayers are truly on the hook for more bailout monies. These supporters should be able to justify $4 trillion in new authority and how the federal government can protect the taxpayer from government officials bailing out friends and former employers. I can’t imagine that the American people will be happy that this Congress and the Obama Administration are standing on the shoulders of Bush Treasury Secretary Hank Paulson to create a permanent authority for bailouts. Senator John Thune (R-SD) has been pushing legislation to end the Troubled Assets Relief Program at a time when others in Congress want to make bailouts permanent.
According to Luntz 71% of Americans are less likely to vote for politicians who support bailouts. According to David Reilly of Bloomberg, the financial regulatory bill contains many objectionable items including the $4 trillion in new bailout authority. Frank Luntz may be working at the behest of paying clients, yet none of his detractors can refute the claim the different versions of this legislation, at the core, sets up a permanent bailout fund for financial firms at a time when unemployment is at 10% and the American taxpayer does not feel like the federal government should be using tax dollars to protect bad decision making on Wall Street.