“If the Dodd bill does not contain bailouts, and if the Boxer amendment would 'prevent' bailouts, why are now Senators Shelby and Dodd working on another amendment to remove the bailout provisions?"—Bill Wilson, President of ALG.
May 3rd, 2010, Fairfax, VA—Americans for Limited Government President Bill Wilson today dismissed an amendment offered by Senator Barbara Boxer (D-CA) to the financial takeover bill as "doing nothing to prevent future bailouts, and instead will guarantee that they occur."
"Senate Democrats need to stop lying to the American people about what is in this legislation. The Boxer amendment will do nothing to prevent unlimited bailouts to creditors that will ultimately be paid for by the American people," said Wilson.
"Senator's Boxer's amendment is being presented as if it removes the unlimited bailout authority from the Dodd bill, but it leaves in place the ability of the government to put a company into receivership, fully compensate its creditors and recapitalize it, all with the bailout fund, which the amendment will not remove from the bill," Wilson explained.
"Then, the bailed-out company, under a new name, could be sold back to the creditors who were already bailed out from the fund in the first place," Wilson added. "That's a bailout."
The Boxer amendment states that any company put into receivership by the Federal Deposit Insurance Corporation (FDIC) must be "liquidated," but in an oped published this morning, Wilson wrote, "the 'orderly liquidation fund' is so broadly established that it even allows the FDIC to operate any company while in receivership, including all staffing decisions and the composition of the board of directors."
The oped continues, "The FDIC could [also] reorganize the company as a 'bridge financial company,' whose board of directors is appointed by the FDIC, and the ownership of the company transferred to the new company by the FDIC. The new company, at the discretion of the FDIC, can then issue capital stock and securities."
Wrote Wilson, "That is a lot more like a Chapter 11 reorganization of company than a Chapter 7 liquidation, except that it can be completely financed by the unlimited fund. That's because it's a bailout."
The controversy over the Boxer amendment came amid reports that there would still be more amendments to remove the bailout provisions. According to the New York Times, "Mr. Dodd and Senator Richard Shelby of Alabama, the senior Republican on the banking panel, said they may introduce a joint amendment early this week that would ease Republican complaints that the measure would still allow government bailouts of economically endangered firms."
Wilson asked, "If the Dodd bill does not contain bailouts, and if the Boxer amendment would 'prevent' bailouts, why are now Senators Shelby and Dodd working on another amendment to remove the bailout provisions?"
Wilson answered, "Because the Boxer amendment does not prevent the bailouts inherently contained in the Dodd bill."
The Boxer amendment contains a provision stating that "No taxpayer funds shall be used to prevent the liquidation of a financial company," which Wilson called "meaningless."
"Everybody knows that the unlimited bailout fund is financed by assessments on about sixty bank holding and insurance companies already. The fact is, as noted by a recent Congressional Budget Office Study, the American people are going to be the ones who pay for it, with higher costs on financial transactions, bank fees, and the like," Wilson said.
According to the CBO study, "the ultimate cost of a tax or fee is not necessarily borne by the entity that writes the check to the government. The cost of the proposed fee would ultimately be borne to varying degrees by an institution's customers, employees, and investors…"
The Senate is expected to vote on the Boxer amendment today.
"'Down a Rabbit Hole:' The Threat Posed by the Dodd Bill to the Private Sector," April 30th, 2010, Americans for Limited Government.
Letter to the U.S. Senate, ALG President Bill Wilson, April 26th, 2010.