Financial Reform

Floor Speech

Mr. McCONNELL. Mr. President, yesterday morning I came to the floor to point out, regretfully, that the financial regulatory bill the Democratic majority plans to introduce in the coming days is fatally flawed. It not only allows endless bailouts for Wall Street, it institutionalizes them, making them official government policy. This is truly astonishing. For nearly 2 years, the American people have been telling us that any financial reform should have two goals: It should prevent the kind of crisis we experienced in the fall of 2008, and it should ensure that the biggest Wall Street banks pay for their own mistakes--the biggest Wall Street banks pay for their own mistakes. Yet the bill we are being asked to consider does not even begin to solve these fundamental problems. In fact, it exacerbates them. It is almost as if the people who wrote this bill took the pulse of the American people and then put together a bill that endorses the very things they found most repugnant about the first bailout.

The proponents of this bill will make a lot of claims about what this bill does and does not do. But the American people did not go through the financial crisis, did not put up their own collateral to bail out Wall Street only to be deceived about the contents of this Wall Street bill.

We need some truth in advertising here, so let's look at what this bill actually does. Its authors claim the bill gives the government the authority to wind down failing firms with no exposure to the taxpayer. But as a factual matter the bill creates bailout funds, authorizes bailouts, allows for backdoor bailouts in the FDIC, Treasury, and the Fed, and even expands the scope of future bailouts.

It does this, first of all, by creating a new permanent bailout fund, a prepaid $50 billion bailout fund, the very existence of which would, of course, immediately signal to everyone that the government is ready to bail out large banks the same way it bailed out Fannie Mae and Freddie Mac. So the same distortions--the very same distortions that developed within the housing market would inevitably develop in the financial sector. Didn't like Fannie Mae and Freddie Mac? How about 35 to 50 of them? That is what this bill would give us.

Second, it authorizes bailouts for creditors. In other words, it is not enough to bail out a bank; the people who invested in the bank would get a bailout too. Made a bad bet? No problem; the government will bail you out. Made a bad bet on a company that made a bad bet? No problem; the government will bail you out, too--provided, of course, that you are among the creditors favored by the White House. This is great if you are on Wall Street; it is not so great if you are on Main Street. It is great if you are in a union; it is not so great if you are not. This bill institutionalizes the picking of winners and losers and gives the government broad authority in choosing which creditors get paid in full and which ones do not.

Third, the bill gives the government a backdoor mechanism for bailouts by extending to the Federal Reserve an enhanced emergency lending authority that is wide open to abuse. It gives the Federal Deposit Insurance Corporation and Treasury broad authority over troubled financial institutions without requiring them to assume responsibility for their own mistakes. This means that unproductive firms which would otherwise go into bankruptcy would now be propped up by the government like zombies.

Fourth, this bill expands the scope of potential future bailouts--expands the scope of potential future bailouts. It does this by authorizing a financial stability oversight council to designate nonbank financial institutions as potential threats to financial stability and, hence, too big to fail. So a new government board based in Washington would determine which institutions would qualify for special treatment, giving unaccountable bureaucrats and self-appointed wise men in Washington even more power to protect, promote, or punish companies at whim. These favored firms would then have a funding advantage over their competitors, leading to outsized profits and the extension of enormous additional bailout risk for taxpayers even beyond the largest banks.

Fifth, the bill does nothing to correct the massive market distortions that we all know were created by Fannie Mae and Freddie Mac. Job 1 in writing this bill should have been to address the inherent problems caused by these massive government-sponsored entities. This bill ignores that issue entirely.

The American taxpayer has suffered enough as a result of the financial crisis and the recession it triggered. They have asked us for one thing: Whatever you do, they say, do not leave the door open to endless bailouts of Wall Street banks. Whatever you do, the American people have said, do not leave the door open for endless bailouts of Wall Street banks. This bill fails at that one fundamental test.

If there were two lessons we should have drawn from this crisis, one is that if investors are reckless, then they should pay for their recklessness. If investors are reckless, they should pay for their recklessness. The other thing we should have learned is that Washington bureaucrats are horrible at seeing these kinds of crises develop. It should be beyond obvious that more bureaucrats will not prevent the kinds of problems other bureaucrats overlooked.

If you need to know one thing about this bill, it is that it would make it official government policy--official government policy--to bail out the biggest Wall Street banks. This bill would make it official government policy to bail out the biggest Wall Street banks. So if the administration is looking for bipartisan support on this Wall Street bill, they can start by eliminating this aspect of the bill, not because Republicans are asking for it but because community bankers, community bankers all across the country, and American taxpayers are demanding it.

Unfortunately, the administration evidently is more interested in using this debate as a political issue than in actually addressing, on a bipartisan basis, the many weaknesses that are currently built into our economy. For example, it has been reported that the senior Democratic Senator from Arkansas was working on a bipartisan solution to one of the key areas where reform is needed but that she was told by the White House in no uncertain terms that it didn't approve of her efforts at forging a bipartisan deal. It has also been reported that the Democratic chairman of the Banking Committee backed out of bipartisan negotiations under pressure from the White House. The White House spokesman was even more explicit, saying late last month that the White House is not interested in compromising on this legislation. So the White House has been really quite clear. It plans to take the same approach on financial reform as it took on health care--put together a partisan bill, then jam it through on a strictly partisan basis. It should go without saying that this is not the kind of approach most Americans want in Washington, and it is not the kind of approach they were told they could expect from this administration.

We can do better, and we must. Americans are still dealing with the fallout from the financial crisis. Getting this policy right should be our first priority. This bill gets it very, very wrong.

I yield the floor.

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