THE financial regulatory bill has passed Congress. It does not
go far enough, but it is a good deal better than nothing, and The
Seattle Times commends Sens. Patty Murray and Maria Cantwell for
supporting it in the Senate last week.
The bill is a reaction to the crash of September 2008. It increases
public oversight of private risk, and it sets down rules for the federal
government to step in when banks, investment concerns and big insurance
companies fail.
Republicans argue the answer is not to add more regulations, but
simply to let failed companies fail. But when they were in power, and
faced the crisis of September 2008, they followed that policy with one company, Lehman Brothers, before abandoning it. And they were right to abandon it. It would have led the country off a cliff.
When U.S. Senate candidate Dino Rossi denounces Murray for supporting a “bailout bill,” we think: What would you
do? Rossi missed an opportunity when he opposed the bill. He should
have voiced his support, which would have demonstrated independence from
a misguided Republican leadership.
The big financial companies do not want this bill. The Republicans
who call this a “bailout bill” are protecting those big companies.
“Bailout” is not an accurate word for what this bill allows. A better
label is “assisted liquidation.” The law allows federal regulators to
swoop in and take over big financial companies that are not banks, such
as AIG, much the same way the FDIC took over Washington Mutual. Ask the
WaMu shareholders whether they were “bailed out.”
The new law forbids government purchase of equity, as the Bush
administration did with the banks. It does allow the use of public money
to meet the seized company’s obligations in order to prevent the spread
of panic. But it does not require that all obligations be met.
When the Bush administration took over AIG, it was stuck with AIG’s
obligations under speculative instruments called credit default swaps.
This new law allows the government not to pay such obligations.
All this, and other provisions in the bill, provides protection for the Treasury that it did not have in the crisis of 2008.
The law has its own risks. It puts much trust in regulators, who in the past decade have not always deserved it.
The law would be better had Congress included a breakup of the
largest banks, so that with any one of them, less would be at stake. The
Senate did consider an amendment to do that, and Murray and Cantwell
voted for it. It failed, 33-61.
Cantwell has worked tirelessly to make this bill stronger. Murray
must now use her leadership position to go further than this bill and
safeguard Main Street against Wall Street.
– The Seattle Times
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