The Corner

Dodd, Dems Drop $50 Billion Bailout Fund

Sen. Chris Dodd (D., Conn.) has agreed to drop a $50 billion breakup fund from his financial overhaul bill.

The Wall Street Journal reports:

“These measures will prevent large failing firms from holding our country hostage, extorting giant taxpayer funded bailouts under the threat of economic disaster,” Mr. Dodd said Wednesday.

Although Democrats and Republicans don’t have agreements on other parts of the bill, such as consumer protection powers and derivatives regulation, an agreement on resolution powers could help Democrats win more Republican support for the bill when its time for a final vote.

Dodd has also agreed to a number of Republican-suggested changes that make the resolution authority piece of the bill much better. Most importantly, creditors of failed firms can be fronted government money in order to stave off systemic risk in a crisis, but must pay back any they receive in excess of what they would have gotten through bankruptcy. Similarly, all debt guarantees extended by the government must be approved by Congress.

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