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  • Dear Obama Treasury Department: Dodd Plan, Increases, Not Decrease Chance of Future Bailouts

    Speaking yesterday to the U.S. Chamber of Commerce’s Fourth Annual Capital Markets Summit, Deputy Secretary of the Treasury Neal S. Wolin made the case for Sen. Chris Dodd’s (D-CT), including this:

    This should not be a partisan or ideological debate. As David John of the Heritage Foundation has said, “Taxpayers should never again be forced repeatedly to bail out financial services firms like AIG because a company poses a risk to the entire financial system and regulators lack the necessary tools to close the company safely.”

    We are happy to learn that President Barack Obama’s Treasury Department is reading our financial markets analysis, but we are also somewhat alarmed by the misquote used to support the Dodd financial regulation bill. Here is the conclusion to the paper that Wolin asserts supports the Obama financial regulatory scheme:

    Regrettably, the Obama proposal exhibits both flaws by assigning the FDIC a role that it is unprepared to play and giving the Federal Reserve and other regulators such broad powers that a constitutional challenge would be inevitable. Far from a solution, the Obama plan practically guarantees that regulators will need to back up their poor decisions with massive taxpayer bailouts of firms that followed regulators’ directives and got into serious trouble anyway.

    A better approach to preventing another crisis is to modify U.S. bankruptcy law to accommodate the special problems of resolving huge financial firms and to allow the courts to appoint receivers with the specialized knowledge necessary to best deal with their failure. By creating an open process controlled by an impartial judiciary guided by established statutory rules, financial firms, investors, taxpayers, and others would have the advance knowledge that large financial firms that were once known as “too big to fail” can now be closed if necessary without risking disaster. In addition, requiring all larger financial services firms to hold significant amounts of capital to cover losses would greatly reduce the systemic risk that they could pose to the financial system. Higher capital levels would enable many firms that would fail under today’s capital levels to survive a crisis, saving shareholders and bondholders their investments, employees their jobs, and taxpayers billions of dollars in federal bailouts. Congress and the Administration need to learn and heed the lessons of 2008, or a repeat crisis will just be a matter of time.

    If the actual body of the paper was too opaque to discern our views on the subject, the Obama Treasury might have been tipped off about our very different view on the subject by the title of that paper: Using Bankruptcy and Capital Standards to Address Financial Institutions That Are “Too Big to Fail”

    And just so there is no future confusion, here is the latest paper, titled Dodd Financial Regulation Bill: Super Regulators Not the Answer, from David John on the subject:

    The Senate Banking bill proposes to create a new $50 billion fund to be used in “emergencies” to close or restructure failing financial institutions or those perceived as being in danger of default. This fund is certain to be used for bailing out any politically significant financial institution and is nothing less than a permanent TARP program.

    If the Treasury, Federal Reserve, and FDIC agree, failing financial institutions would be turned over to the FDIC for resolution. Three bankruptcy judges must also agree, but this appears to be more window-dressing than any substantive requirement, since the closing or restructuring would be handled by the FDIC and not through bankruptcy courts.

    Despite rhetoric about using bankruptcy for most failures, the draft makes it clear that this is to be handled through a bureaucracy subject to political pressures, since the bill also does not include language adapting the bankruptcy process to the special needs of complex international financial institutions.

    A far better approach would be to create a special section of the bankruptcy code and use it to handle the failures of all major financial institutions. In addition, the FDIC has neither experience with complex international financial failures nor the expertise to handle the failure of these financial institutions.

    Posted in Ongoing Priorities [slideshow_deploy]

    5 Responses to Dear Obama Treasury Department: Dodd Plan, Increases, Not Decrease Chance of Future Bailouts

    1. Alan MacDonald, Sanf says:

      This little article from the AP is the most revealing and important thing in today's Boston Globe — and perhaps in any US newspaper — if we unpack what it shows about the impact of the disguised, deceitful, and destructive corporatist EMPIRE that is quietly taking over our democracy.

      [Headline]

      "Group’s ad effort against overhaul called misguided

      WASHINGTON — The Obama administration went on the attack yesterday against the country’s biggest business lobby over resistance to an overhaul of the financial rules system.

      Deputy Treasury Secretary Neal Wolin told the US Chamber of Commerce on its own turf that a reworking of the financial system was sorely needed and that the attempted obstruction by the chamber was misguided.

      “It is so puzzling that despite the urgent and undeniable need for reform, the Chamber of Commerce has launched a $3 million advertising campaign against it,’’ Wolin told a business audience at the organization’s headquarters, a block from the White House. The chamber — “funded, no doubt, with a good deal of your money — has launched a lavish, aggressive, and misleading campaign to defeat’’ the new consumer protection agency proposed by the legislation, Wolin said."

      First, the Chamber of Commerce is really not the nice little local volunteer organization of pro-small business chambers that most people think it is, but rather covertly functions as a guileful “Chamber of EMPIRE”.

      The national Chamber of Commerce, though they don’t wear the brown shirts and black arm-bands of an overt and visible fascist Empire take-over, is actually working toward nothing short of what Sheldon Wolin (ironically) accurately described as “inverted fascism” — or the merger of corporatism and state power, similar to Hitler, but where financial corporatism is the Fuhrer (‘leader’) in the driver’s seat, and the state is merely the junior partner in this destruction of democracy.

      Far from being the polite little local business organization that it masquerades as, the Chamber of EMPIRE is the Krystalnach SS shock troops and Joseph Goebbles propaganda brigade of a ruling-elite Global corporate/financial/militarist EMPIRE, which is intent on totally controlling ‘our’ country by hiding behind the façade of its TWO-PARTY modern ‘Vichy’ sham of faux democratic government.

      The “Chamber of EMPIRE” is actually at the heart of a coordinated Panzer division and Luftwaffe ‘Blitzkrieg’ smashing through not merely France’s physical Maginot Line, but with a 21st century ‘shock doctrine’ (started in the Bush regime) smashing through the defensive line of America’s and the world’s democracies.

      Yes, the “Chamber of EMPIRE”, along with the sweet sounding, but global imperialist organizations of the World Bank, IMF, WTO, and all the assembled might of the hundreds of ‘divisions’ of monstrous transnational and global corporate/financial "shock troops", Wall Street crooks, Hedged Fund Whores, and Private Equity Pirates that this 21st century Global EMPIRE can raise — far exceeding 10th century Popes with their religious Empire dreams, or even Hitler and Stalin with their 20th century dreams of single nation-state Empires — is now more guilefully and slowly stepping on the throats of democracies everywhere in our world.

      Yes, the sweet sounding little local Chamber of Commerce is the epitome of this most deadly 21st century looming Global corporate/financial/militarist EMPIRE’s stealthy ‘Predator Drone’ strategy to ‘fly beneath our radar’ and appear to be “Friendly Fascism” (Bertram Gross’s term) today, while preparing to shoot ‘Hell-Fire Missiles’ at all of us if democracy doesn’t just get the hell out of the way of their Global Empire.

      No, we're not going to just quietly get the hell out of the way of your friggin EMPIRE. We're going to confront your damn EMPIRE and protect our country, our children, and our democracy!

      The only real defense against this looming threat to our country, our children, and our world by Global EMPIRE fueled with “Empire-thinking”, is for average people everywhere to unite in solidarity and defend our democracy in a Global People’s “Anti-EMPIRE” movement starting with little sparks of populist, progressive, libertarian, anti-war, anti-corporatist, and Anti-EMPIRE movements like the unifying “Anti-Empire” Movement recently founded by Kevin Zeese, David Beito, Ralph Nader and many others on both the left progressive and right libertarian sides of this Global EMPIRE threat.

      Alan MacDonald

      Sanford, Maine

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