Wednesday, April 14, 2010

Financial Reform

The latest plan out of the Senate Banking Commitee includes a $50 billion bailout fund to handle failed banks. Chris Dodd claims the fund will be used to liquidate bank assets in the event of a failure.

Critics of the plan believe the bankruptcy and the market are more than enough to handle a bank liquidation.

“There is no reason why a bank holding company cannot be dealt with in bankruptcy except that it inconveniences politicians,” Mr. Whalen said.

Bondholders would actually fare better under normal bankruptcy than under the Dodd bill, he said, adding: “Until the U.S. government stops behaving like a bunch of European technocrats and ends the idea of a public bailout for any bank, the cancer of ‘too big to fail’ and, behind it, political corruption and the corporate state, will grow.”

Until we let banks face the consequences of their bad decisions, they will continue to use the federal government, and by extension the American taxpayer, as their de facto insurance company.

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