Thursday, April 15, 2010

Endless Taypayer Bailouts

Mitch McConnell's Attack on Financial Reform, and Why We Shouldn't Outlaw Future Bailouts.

By: Jordan Young

Senate Minority Leader Mitch McConnell has been attacking the Dodd financial regulatory reform (FinReg) bill in the last few days, claiming it "guarantees endless taxpayer bailouts." Several Republican senators have already showed some willingness to break with McConnell on this issue, with Senator Judd Gregg (R-NH) calling the comments "a bit over the top," and Senator Bob Corker (R-TN) calling on senators to "act like grown-ups." 

There's obviously a large levels of rhetoric here somewhat divorced from the facts. The bill certainly doesn't codify future bailouts and puts into place a series of requirements that large financial institutions have funeral plans and that they put capitol in place to bail themselves out if need be. 

That said, I'm starting to think McConnell is trying to make an argument for which many people on the left and the right might express support. While the legislation doesn't codify future bailouts, it also doesn't ban them. Many are so understandably upset that taxpayers had to bailout the banks that they want to make sure it never happens again. That's certainly a goal we can all get behind, but it's important to make sure we are treating the cause and not the symptom here. The bailout was and is unpopular, but the risky behavior of banks should be more so. 

I continue to believe, and I think most economist would back me up, that as upsetting as the bailout was, it was incredibly necessary and saved our economy from a total melt down. If we get distracted by our anger at the bailout, we may miss the opportunity we have here to address the real problem. If that happens, we could find ourselves in another crisis, but this time without the ability to save ourselves.

Banning future bailouts is not the answer. Addressing the reason the last one was necessary is.

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