[Congressional Record (Bound Edition), Volume 156 (2010), Part 4]
[Senate]
[Pages 5389-5390]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            FINANCIAL REFORM

  Mr. McCONNELL. Mr. President, yesterday morning I came to the floor 
to point out, regretfully, that the financial regulatory bill the 
Democratic majority plans to introduce in the coming days is fatally 
flawed. It not only allows endless bailouts for Wall Street, it 
institutionalizes them, making them official government policy. This is 
truly astonishing. For nearly 2 years, the American people have been 
telling us that any financial reform should have two goals: It should 
prevent the kind of crisis we experienced in the fall of 2008, and it 
should ensure that the biggest Wall Street banks pay for their own 
mistakes--the biggest Wall Street banks pay for their own mistakes. Yet 
the bill we are being asked to consider does not even begin to solve 
these fundamental problems. In fact, it exacerbates them. It is almost 
as if the people who wrote this bill took the pulse of the American 
people and then put together a bill that endorses the very things they 
found most repugnant about the first bailout.
  The proponents of this bill will make a lot of claims about what this 
bill does and does not do. But the American people did not go through 
the financial crisis, did not put up their own collateral to bail out 
Wall Street only to be deceived about the contents of this Wall Street 
bill.
  We need some truth in advertising here, so let's look at what this 
bill actually does. Its authors claim the bill gives the government the 
authority to wind down failing firms with no exposure to the taxpayer. 
But as a factual

[[Page 5390]]

matter the bill creates bailout funds, authorizes bailouts, allows for 
backdoor bailouts in the FDIC, Treasury, and the Fed, and even expands 
the scope of future bailouts.
  It does this, first of all, by creating a new permanent bailout fund, 
a prepaid $50 billion bailout fund, the very existence of which would, 
of course, immediately signal to everyone that the government is ready 
to bail out large banks the same way it bailed out Fannie Mae and 
Freddie Mac. So the same distortions--the very same distortions that 
developed within the housing market would inevitably develop in the 
financial sector. Didn't like Fannie Mae and Freddie Mac? How about 35 
to 50 of them? That is what this bill would give us.
  Second, it authorizes bailouts for creditors. In other words, it is 
not enough to bail out a bank; the people who invested in the bank 
would get a bailout too. Made a bad bet? No problem; the government 
will bail you out. Made a bad bet on a company that made a bad bet? No 
problem; the government will bail you out, too--provided, of course, 
that you are among the creditors favored by the White House. This is 
great if you are on Wall Street; it is not so great if you are on Main 
Street. It is great if you are in a union; it is not so great if you 
are not. This bill institutionalizes the picking of winners and losers 
and gives the government broad authority in choosing which creditors 
get paid in full and which ones do not.
  Third, the bill gives the government a backdoor mechanism for 
bailouts by extending to the Federal Reserve an enhanced emergency 
lending authority that is wide open to abuse. It gives the Federal 
Deposit Insurance Corporation and Treasury broad authority over 
troubled financial institutions without requiring them to assume 
responsibility for their own mistakes. This means that unproductive 
firms which would otherwise go into bankruptcy would now be propped up 
by the government like zombies.
  Fourth, this bill expands the scope of potential future bailouts--
expands the scope of potential future bailouts. It does this by 
authorizing a financial stability oversight council to designate 
nonbank financial institutions as potential threats to financial 
stability and, hence, too big to fail. So a new government board based 
in Washington would determine which institutions would qualify for 
special treatment, giving unaccountable bureaucrats and self-appointed 
wise men in Washington even more power to protect, promote, or punish 
companies at whim. These favored firms would then have a funding 
advantage over their competitors, leading to outsized profits and the 
extension of enormous additional bailout risk for taxpayers even beyond 
the largest banks.
  Fifth, the bill does nothing to correct the massive market 
distortions that we all know were created by Fannie Mae and Freddie 
Mac. Job 1 in writing this bill should have been to address the 
inherent problems caused by these massive government-sponsored 
entities. This bill ignores that issue entirely.
  The American taxpayer has suffered enough as a result of the 
financial crisis and the recession it triggered. They have asked us for 
one thing: Whatever you do, they say, do not leave the door open to 
endless bailouts of Wall Street banks. Whatever you do, the American 
people have said, do not leave the door open for endless bailouts of 
Wall Street banks. This bill fails at that one fundamental test.
  If there were two lessons we should have drawn from this crisis, one 
is that if investors are reckless, then they should pay for their 
recklessness. If investors are reckless, they should pay for their 
recklessness. The other thing we should have learned is that Washington 
bureaucrats are horrible at seeing these kinds of crises develop. It 
should be beyond obvious that more bureaucrats will not prevent the 
kinds of problems other bureaucrats overlooked.
  If you need to know one thing about this bill, it is that it would 
make it official government policy--official government policy--to bail 
out the biggest Wall Street banks. This bill would make it official 
government policy to bail out the biggest Wall Street banks. So if the 
administration is looking for bipartisan support on this Wall Street 
bill, they can start by eliminating this aspect of the bill, not 
because Republicans are asking for it but because community bankers, 
community bankers all across the country, and American taxpayers are 
demanding it.
  Unfortunately, the administration evidently is more interested in 
using this debate as a political issue than in actually addressing, on 
a bipartisan basis, the many weaknesses that are currently built into 
our economy. For example, it has been reported that the senior 
Democratic Senator from Arkansas was working on a bipartisan solution 
to one of the key areas where reform is needed but that she was told by 
the White House in no uncertain terms that it didn't approve of her 
efforts at forging a bipartisan deal. It has also been reported that 
the Democratic chairman of the Banking Committee backed out of 
bipartisan negotiations under pressure from the White House. The White 
House spokesman was even more explicit, saying late last month that the 
White House is not interested in compromising on this legislation. So 
the White House has been really quite clear. It plans to take the same 
approach on financial reform as it took on health care--put together a 
partisan bill, then jam it through on a strictly partisan basis. It 
should go without saying that this is not the kind of approach most 
Americans want in Washington, and it is not the kind of approach they 
were told they could expect from this administration.
  We can do better, and we must. Americans are still dealing with the 
fallout from the financial crisis. Getting this policy right should be 
our first priority. This bill gets it very, very wrong.
  I yield the floor.

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