Tuesday, April 27, 2010

GOP Don't Like "Orderly Liquidation Fund." What Do They Like?

Donny Shaw wrote an interesting piece on the "orderly liquidation fund," found in the Restoring American Financial Security Act, for OpenCongress, in which he states some interesting contradictions regarding the Republican opposition to the $50 billion provision.
The ironic thing about the Republican opposition to the orderly liquidation fund, which appears to be winning at getting the Democrats to drop it, is that the costs of winding down a failing mega-bank without the fund would end up going to taxpayers. Earlier this week, the Congressional Budget Office said that the bill, as written, would reduce the deficit by $21 billion over the next ten years because the collections of finance-industry assessments into the $50 billion orderly liquidation fund would “exceed the expected cost of liquidations during the capitalization period.” That means that without the fund, taxpayers would be $29 billion in the hole.
Even worse, the CBO estimated that in at least one of the next four 10-year periods beyond 2020, the costs of winding down failing banks would exceed the income from the assessment on banks into the orderly liquidation fund by more than $5 billion. Without having a bank-paid fund in the bill, the cost of winding down failing mega-banks sounds mighty expensive. This of course begs the question: if the Republicans are opposing the orderly resolution fund and they’re opposing the bailouts, are they going to support more radical approaches, like an expected amendment to reduce the size of the big banks?
I would like to know what exactly the GOP is thinking?  They are against making the banks pay for their own failures, but they decry the use of taxpayer money for bank bailouts.  In fact, they are against the entire concept of bailouts altogether, misinforming the public by claiming this liquidation fund would essentially allow for bailouts to become the norm on Wall Street, so really, I am at a loss for words when trying to figure out where the conservatives stand on this issue.

I for one am open to the idea of the orderly liquidation fund.  I don't mind other people paying for the shutting these banks down.  While critics believe this fund will discourage safe practices because bankers will see it as a safety net, and continue to operate business as usual, the banks know what this legislation means - shape up or ship out.  The only difference between now and later is that now, when a bank fails, someone else foots the bill, which I think would do more to prevent bankers from doing the right thing.  Under this bill, the banks "too big to fail" will be responsible for funding their own failing, giving them more incentive to not fail.

Let's say that the critics are right, and the banks still engage in risky behavior.  When they fail, and lets say they overwhelm the fund, the blow to taxpayers is still less then had it not existed in the first place, and as Shaw points out, if the GOP is opposed to the fund, will they oppose other solutions to the problem?  My thinking is that they will never be satisfied, which is bad for the party that claims to be fiscally responsible...

Republicans need to get back in the game and start hammering out the details with the Democrats on the senate floor for all to see, otherwise they will appear to be weak on the economy, which in my opinion, I believe they still are, considering they want a return to the failed policies of the past...

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