The Washington Post reports today, “In a rare show of bipartisanship, the Senate on Wednesday overwhelmingly approved an amendment to the financial regulatory bill aimed at ensuring that taxpayers never again be on the hook for bailing out collapsed banks and investment firms. The 93 to 5 vote brought together senators as diverse as ultra-liberal Bernard Sanders (I-Vt.) and Richard C. Shelby (R-Ala.), the conservative who co-wrote the amendment with Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee. . . . Their deal . . . centered on a portion of the bill aimed at giving the government power to wind down large, troubled firms without putting taxpayer money at risk. The heart of the agreement was Dodd’s willingness to drop a proposed $50 billion fund, which would be filled upfront by the financial industry, that would cover the cost of closing down failing firms. Republicans had criticized the provision as a ‘bailout fund’ that could encourage financial firms to act recklessly, knowing the fund was in place.”
Senate Republican Leader Mitch McConnell noted, “While some said the Dodd bill did not allow for bailouts, this bipartisan agreement improves the bill by limiting loopholes and seeks to make sure investors, not taxpayers, are on the hook when a Wall Street bank fails. Thanks to the efforts of the entire Republican Conference over the previous weeks, Sens. Dodd and Shelby had the time to address the concerns raised by members on both sides about flaws in this section of the bill.”
Fifty-seven Democrats voted for the Dodd-Shelby amendment yesterday, yet Democrat leaders had just spent weeks attacking Republicans for explaining that the original version of the Dodd financial regulation bill could perpetuate bailouts. In his weekly address, President Obama said that Sen. McConnell “made the cynical and deceptive assertion that reform would somehow enable future bailouts – when he knows that it would do just the opposite.” He later declared that it’s “not legitimate” “to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts.”
Meanwhile, Senate Democrat leaders held press conferences to denounce Republican criticism of the bill. Senate Majority Leader Harry Reid said, “There is no question in my mind that the statements we’ve just seen here are untrue.” Sen. Chuck Schumer (D-NY) went even further, proclaiming, “These lies are not taking hold.” And Dodd said on the Senate floor that to “suggest that somehow what we have done here is to perpetuate ‘too big to fail’ is poppycock.”
But today, after Reid, Schumer and Dodd all voted for the amendment eliminating taxpayer liability for bailouts, Dodd said, “We’ve resolved, I believe, to virtually all of our satisfaction the too big to fail argument. We did that yesterday and I again thank my colleagues, particularly Senator Shelby and others, for helping us work through that to come to a conclusion that ends the debate as to whether or not the bill before us ends too big to fail.”
Indeed, the Dodd-Shelby amendment seems to have done that. But had it not been for Republicans, not only would there not have been a debate, the language would never have been fixed. Once again, Republicans have been proven right for their concerns about hastily drafted Democrat legislation. Unlike on the health care bill, Democrats were willing to join with Republicans to fix a major problem with the Dodd bill. They should do the same with the serious problems in the consumer protection agency provisions that remain in the bill that could harm small businesses.