Moral hazard for Party of No

Disingenuousness, not governance, is what the Republican Party is selling these days. Republican leaders have concluded that denying Democrats any legislative victories is more important than America's future. And they'll peddle any fear-mongering falsehood to rally supporters to their side.

This was the strategy during the health care debate. Republicans conjured bogeymen like death panels and Medicare's gouging, and the Fox News faithful dutifully stormed the ramparts. That helped congressional Republicans avoid key governance questions, such as how they would rein in health care spending and cover the uninsured. (And why they failed to do so over the years they controlled Congress and the White House.)

Now that strategy is being employed to undermine financial reform. Senate Minority Leader Mitch McConnell is asserting that the Senate bill will lead to more bank bailouts. It is an absurd claim. The bill proposed by Sen. Chris Dodd, chairman of the Senate Banking Committee, would impose a host of new financial controls, higher capital levels and systemic risk oversight to prevent another too-big-to-fail scenario. And it would have been stronger had Dodd not tried to appease Republicans on his committee.

The bill creates a dissolution process for failing institutions that McConnell points to as encouraging moral hazard. The mechanics include a liquidation fund of $50 billion, collected from the country's biggest financial institutions, to be used to dismantle and unwind these financial giants. How is that a taxpayer bailout?

If McConnell truly wanted a stronger bill he'd sign on to Democratic Sen. Blanche Lincoln's legislation to wall off over-the-counter derivatives trading from commercial banking. He would stand with former Fed Chairman Paul Volcker in calling for a return of the Glass-Steagall separation of commercial and investment banking. He would demand that credit rating agencies stop getting paid by the very people whose securities they rate.

Not going to happen.

McConnell's true motive is to block regulation of the financial industry and mine for himself and fellow Republicans a rich seam of banker gold in campaign contributions. He just met with dozens of Wall Street executives and hedge fund managers to urge their support of Republicans who are trying to: Kill Bill.

Then there was that piece of advice given last month by Rep. John Boehner, the Republican House minority leader, to members of the American Bankers Association, telling them to stand up against "those little punk staffers" who work for the Senate Banking Committee.

Wow. I'd like to know what Republicans say to these guys when no one else is listening. "Yes, master?"

So how do Republicans fool everyone into believing they are against Wall Street bankers? By claiming that a bill Wall Street opposes will coddle Wall Street.

"Everybody agrees on the need to protect taxpayers from being on the hook for future Wall Street bailouts," McConnell said in a speech on the Senate floor Tuesday. "This bill would all but guarantee that the pattern continues."

The dishonesty is so bold it borders on impressive.

While I certainly agree in principle that we should do everything possible to avoid future taxpayer bailouts of banks, the truth is that the program saved the financial sector and the Detroit auto industry.

It was a $700 billion taxpayer gamble that paid off. Not only were millions of American jobs and our banking system salvaged, we can also expect to get the bulk of our money back. The latest estimate from the Treasury Department is the bailouts will end up costing taxpayers $89 billion — not bad for a rescue of such scale.

McConnell's alternative to Dodd's regulation-heavy offering is that the biggest banks simply should be allowed to fail. But the bravado is little more than playacting. McConnell voted for the bank bailout in 2008, pushing for its quick passage. And if it serves Wall Street, Republicans would line up again. It is only the rest of us they pretend to care about, and really don't.

Moral hazard for Party of No 04/17/10 [Last modified: Friday, April 16, 2010 8:11pm]

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