[StBernard] Obama Pushes For More Bailout Power

[Westley Annis]

Dear Friend, 

	

Bipartisan negotiations on financial reform legislation had been making real
progress toward truly ending "too big to fail" and replacing it with a
strong resolution mechanism that would ensure that failed firms are
liquidated. Unfortunately, President Obama has pulled the legislation away
from this approach. 

	

Instead he is supporting efforts that would actually extend the government's
ability to bail out failing firms through use of the Orderly Liquidation
Fund. This newly proposed fund looks suspiciously similar to the original
bailout program, which has steadily broadened in scope from its original
purpose. 

	

The Obama-supported legislation would also allow a newly established
systemic risk regulator to identify systemically risky firms and to require
them to register with the Federal Reserve for direct supervision. Under the
guise of providing extra regulation for the riskiest firms, this would
essentially create an official "too big to fail" club. Given the bailouts of
the last two years, this signal would likely create unintended and unfair
advantages in the market for the largest firms at the expense of smaller
firms. 

	

It's clear that while this bill purports to address issues of systemic risk,
it would have far-reaching negative consequences for our financial system.
In addition to tacitly approving the "too big to fail" mindset and
dramatically broadening the FDIC's power to grant favored status to specific
firms, the bill would establish a permanent mechanism for government
bailouts of irresponsible firms. 

	

In short, the proposal would shift exposure from the most systemically risky
firms directly to the shoulders of the American taxpayer by granting
government backing to firms that federal regulators consider "too big to
fail." 

	

That's a risk the American people don't want - and one that Congress can't
afford to take. 

Sincerely,
David Vitter
U.S. Senator