Michael Barone‘s latest piece for the Washington Examiner offers Republicans advice for tackling Democrats’ proposed financial regulations.
The real heart of the Dodd bill is the provision creating a $50 billion fund collected from large financial firms and authorizing the Federal Deposit Insurance Corporation to use the funds to reorganize any such firm it decides is failing. Under the bill, the FDIC would use this “resolution authority” rather than have the firm go into bankruptcy courts, as Lehman Brothers did after it collapsed in September 2008.
This sounds reassuring. But actually it’s very dangerous. It amounts to granting “too big to fail” status to financial firms like Goldman Sachs and JPMorgan Chase. As my American Enterprise Institute colleague Peter Wallison and University of Pennsylvania law professor David Skeel explain in the Wall Street Journal, it tells those firms’ creditors and shareholders that Uncle Sam will bail them out if they make what turn out to be imprudent loans.
