Here’s my quick take on the good and the bad. First, a description of the good, courtesy of Politico:
To many experts, the real meat of the package is the so-called dissolution authority it would grant federal regulators to put failing massive financial institutions to death without the need of taxpayer bailouts. Administration officials have said that the absence of such authority is what forced them to seek taxpayer money to deal with firms such as Lehman Brothers or the Federal Reserve’s emergency lending powers to rescue mega-insurer AIG.
Under the bill, the fund would collect $150 billion from the largest financial institutions to pay for the cost of winding down one of their own should another crisis strike. Critics charge that taxpayers will still be on the hook since the fund may not cover the cost of another meltdown.
This is not as bad as some conservatives and Republicans think, and here’s why: The U.S. government has conferred a subsidy on the banking system that cannot be taken back easily. Long after the banks repay their TARP funds, they will still enjoy lower borrowing costs and other advantages thanks to the perception that they would be bailed out again if another crisis hit. If a firm is so large that it would be rightly perceived as too big to fail, then it should pay for that privilege, even if it didn’t ask for it. On the government side, dissolution authority would give policymakers a credible alternative to bankruptcy that might weaken the perception, broadly shared, that future bailouts would, like TARP, spare bank bondholders and shareholders from the consequences of risks they’ve voluntarily assumed.
The bad can be summed up in four words: Consumer Financial Protection Agency. Others have effectively made the case for what a nuisance this new agency could turn out to be, but a little-noticed aspect is that the CFPA would be given the authority to enforce the Community Reinvestment Act, the lending law that arguably started us down the path to no-income, no-asset mortgages. If you thought the Fed did a bad job with CRA, wait until it’s being enforced by ACORN’s dream agency.