Solution Remains: Black Letter Law, Larger Capital Reserves and Full Public Disclosure of Investments
The only thing surprising about Frank Luntz’s suddenly famous memo on how to oppose Obama’s financial reforms, is that anyone is surprised. Of course the House bill establishes permanent bail-out authority, and of course it sticks taxpayers with at least part of the bill. And the Senate bill will be even worse on this point.
Language of Financial Reform –
They key, as we have been saying all along, is that the Administration approach perpetuates regulatory discretion. Although Dems claim the House bill mandates very severe “resolutions” for bad banks, making management walk the plank and wiping our shareholders, in practice the FDIC, which would be the resolving authority, has lots of discretion to shape the outcome. And though the resolution fund would be topped up originally by fees on banks, taxpayers would be on the hook if the fund ran out of money.
The Dems might argue that there is no other choice—there must be an orderly way to shut down banks that are too big to fail and any such procedure is going to look something like the House bill, including allowing for lots of regulatory discretion.
That’s right, which is why the object of reform ought to be to make banks either not too big or not likely to fail or both. This proper tools for that are black letter law requirements for larger capital reserves and especially full public disclosure of all bank investments.
Andrew Redleaf and Richard Vigilante
Tags: Andrew Redleaf, Black Letter Law, Full Public Disclosure of Investments, Larger Capital Reserves, luntz, Richard Vigilante, Whitebox
