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Richard Drew / AP Photo Now that health care’s been settled, Charlie Gasparino says we must begin a new debate about Wall Street’s sweetheart deals and “too big to fail,” or we’re in for another meltdown.
As Congress put the finishing touches on a massive overhaul of health care, I was reminded of an interesting statistic: Health care represents around 16 percent of the U.S. economy, but in the fall of 2008, the big financial firms nearly destroyed 100 percent of our financial system. And yet, a new banking-reform bill spearheaded by Senator Chris Dodd—a bizarre choice to reform the system given his own connections to the bubble-tainted mortgage lender Countrywide Financial—may soon be the law of the land with very little real public debate.
And if the reform’s main provisions are rammed through the Democrat-controlled Congress, and signed by President Obama, the new law may once again encourage excessive risk-taking and set the stage for another economic meltdown.
FDIC Chief Sheila Bair said in a recent speech that the way the Dodd bill is written, there could be “back-door bailouts” of systemically important firms, meaning the spirit of Too Big to Fail lives on.
The Dodd bill, which is now being vetted by Senate Republicans—most notably, ranking budget committee member Richard Shelby—has taken a backseat to the prolonged debate over health care. It shouldn’t. Let’s not forget that the 9.7 percent unemployment rate that has devastated the economy, and left virtual economic ghost towns in areas of upstate New York and the Midwest—basically, any place that doesn’t employ massive numbers of subsidized government workers or bail out subsidized Wall Street bankers and traders—began with the implosion of the financial system in 2007 and 2008.
In other words, financial reform is a big issue, and the debate on how to shape it will begin in earnest Monday, when the Republicans add their two cents to what Dodd has come up with— including a consumer protection agency, provisions to wind down troubled banks, and something designed to erase the notion that no bank is ever again deemed “too big to fail.”
The last item in my view is the most important, and at least there’s been some progress in that both Dodd and the Republicans recognize that when a bank knows it’s too big to fail, it will take risks that put its future in jeopardy. This kamikaze strategy is part of the bizarre logic of Wall Street: When bankers and traders know taxpayer money is on the line, they act less prudently not more, and don’t think twice about gambling away their firms in the process.
That said, as I understand the bill that Senator Dodd presented to Richard Shelby, the ranking minority member of the banking committee, is still unclear in the way it ends Too Big to Fail. People who have seen the Dodd bill say it still contains a provision that allows the Fed to step in and bail out “systemically important” firms. (In other words, companies that the bureaucrats in Washington believe to be vital to the overall economy would still be protected.) If that sounds like we’re back to square one on Too Big to Fail, you’re right. After some criticism, Dodd now says the provision has been removed. But others are skeptical: FDIC Chief Sheila Bair said in a recent speech that the way the Dodd bill is written, there could be “back-door bailouts” of systemically important firms, meaning the spirit of Too Big to Fail lives on.
Why would Dodd say one thing and do another? My view: He’s a creature of Washington who has feasted off his ties to Wall Street for years.
The big bankers, meanwhile, like to call themselves capitalists, but they love having the backing of the American taxpayer via politicians like Dodd when things get rough. Just study the last 30 years of risk-taking on Wall Street as I did in my book The Sellout. The partnership between Wall Street and Washington worked just fine for the politicians and bankers. Meanwhile, as the campaign contributions flowed in, taxpayers were financing Wall Street’s dice rolling either through low interest rates by the Fed or through direct bailout money.
View as Single Page 12 Back to Top March 21, 2010 | 11:02pm Facebook | Twitter | Digg | Share | Emails | print var OutbrainPermaLink=document.location.href.replace(document.location.search, '').replace(/\/\d+\/$/,'/').replace(document.location.host, 'thedailybeast.com'); var OB_Template = "The Daily Beast"; var OB_demoMode = false; var OBITm = "1255455386150"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } Chris Dodd Citywide, Banking Reform, Wall Street Reform, Obama Bank Reform, Bank Reform, Richard Shelby, Christopher Dodd, Too Big To Fail, Sheila Bair, Senate Banking Committee, Chris Dodd, Health Care Reform, Health Care, Politics, Economy, Business, Wall Street (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: GPatton
First, Obama should hand Geithner and Summers their walking papers. Then, there should be perp walks, starting at 85 Broad Street. And Dick Fuld should be put in prison. The big securities outfits should be broken up. No more too big to fail. The traders will have to start playing with their own money, for a change. And financial instruments, all of them, have to be traded on exchanges where everything is transparent. George Patton
Flag It | Permalink | Reply 4:54 pm, Mar 22, 2010 DakLakDodd has readied some legislation but the No! is back to it's health care tricks.
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Obama Makes History
The Daily Beast is dedicated to news and commentary, culture, and entertainment. We carefully curate the web’s most essential stories and bring you original must-reads from our talented contributors.
The Red State Sex Fetish
Anneli Rufus is the author of many books, including Party of One: The Loners' Manifesto and the Nautilus Award-winning Stuck: Why We Don't (or Won't) Move On, and the coauthor of still more, including Weird Europe and The Scavengers' Manifesto. Her books have been translated into numerous languages, including Chinese and Latvian. In 2006, she won a Society of Professional Journalists award for criticism.
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Divya Gugnani is the CEO and founder of BehindtheBurner.com, an emerging culinary media brand that creates expert-based content about food, wine, mixology, and nutrition.
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Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
He'll Go Free
Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
How Obama Screwed Volcker
Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
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