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National Review Online


The IMF, the U.S., and Greece

May 07, 2010

By Nicole Gelinas

It is good, though, that Congresswoman Rodgers is concerned about “bailout fatigue.” As a House Republican leader, perhaps she could ask her Senate counterparts — including Richard Shelby on the Banking Committee — why they have signed off on a flawed amendment to Sen. Chris Dodd’s financial regulatory bill.

Shelby has said that the Senate amendment “ends ’too big to fail’”; it does not. For one thing, the amendment would allow the FDIC to guarantee banks’ new bond issuances in an emergency, as the agency did from October 2008 to last year. (The guarantee program included the former investment banks, too, like Goldman Sachs and Morgan Stanley, which won traditional bank-holding company status in late 2008.)

Sure, the bill, thanks to the GOP tweaks, now says that the FDIC cannot offer such extraordinary guarantees again absent Congress’ explicit “approval.” But if future legislation is needed, anyway, why say anything in the bill on this topic? Congress prohibits all sorts of things. We understand that it reserves the privilege of changing its mind in the future. There is no need for extra laws reminding people what Congress prohibits but may change its mind about.

But that is exactly what the bill does here. It goes beyond that, actually, ordering Congress (itself) to fast-track the approval of FDIC bank-debt guarantees if the president asks for it.

The language is there to achieve one end. Bondholders to banks will know that in an emergency, the firms to which they’ve lent money will have access to new government-guaranteed debt to keep themselves afloat.

Funny. We’re trying to crawl out from under a “financial crisis” that’s really just a massive pile of debt. But we keep thinking that we can do it with yet more government subsidies of debt.

Successful financial reform would wean markets off the idea that the government will continue to take extraordinary measures in the credit markets on demand (beyond, say, zero percent interest rates).

Now, Congress, with Republican approval, is just making the extraordinary — including regular need for emergency legislation — ordinary.

Original Source:



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