Guest Blogger: Rep. Ed Royce (R-CA) on Financial Regulatory Reform
Rep. Ed Royce /
As the Senate moves closer to another cloture vote on Senator Dodd’s legislation, we are again reminded of the several flaws found in the Dodd-Frank approach to financial regulatory reform.
Beginning with the rescue of investment bank Bear Stearns in the spring of 2008, the Federal government has committed trillions of taxpayer dollars to institutions like Fannie Mae, Freddie Mac, AIG, Citigroup and Bank of America, out of fear that the demise of any of these “too big to fail” institutions would trigger a systemic crisis and collapse of the global financial system. With the bailout of creditors domestically and overseas, we have seen an increase in moral hazard and a 78 basis point advantage in lower borrowing costs for those firms receiving government funds.
Instead of learning from the failures of 2008, the legislation put forward will compound the moral hazard problem. Take the House bill that passed last December. Armed with a $150 billion bailout fund backed by the US Treasury, regulators would be authorized to “make loans to, or purchase the debt obligations of a systemically risky company; purchase its assets; assume or guarantee its obligations; take liens on assets or sell or transfer the company’s assets.” This is a huge amount of power left to the discretion of government officials. As my colleague Rep. Brad Sherman (D-CA) accurately described when the bill was first introduced, it amounts to “TARP on steroids.” (more…)