The Corner

The New York Times Awakens to Financial Reform

On Saturday the New York Times editorial page accused Republicans of protecting banks and “suddenly” finding objections to the Dodd financial-reform bill.

For instance, the Times asked: “Did they [Republicans] belatedly discover some problem? No. They suddenly realized that their bet that reform would be watered down as it moved along might not pan out.”

Now, it is fine for the Times to have its own opinions, but it is not fine for the Times to have its own unique set of facts. And the facts are that Republicans (and some Democrats) have been raising concerns about the potential for bailouts during the entire process. Did the Times editors somehow miss the floor debate over the House bill last fall? Republicans offered their alternative, which actually does stop bailouts, while Rep. Barney Frank (D., Mass.) moved his bill — and made clear on the House floor that his bill would allow select creditors to be rescued.

Maybe the Times missed the Senate Banking Committee’s aborted mark-up in November. There Sen. Richard Shelby (R., Ala.), among, others opposed the Dodd bill on the grounds that . . . yes, you got it, it would allow creditors to be bailed out. Recent statements by Senate minority leader Mitch McConnell (R., Ky.) are no different from what Shelby and others have been talking about for months.

And it is not only Republicans. Before the House Financial Services Committee in October, Treasury Secretary Timothy Geithner said: “A standing fund would create expectations that the government would step in to protect shareholders and creditors from losses.” What does the Dodd bill have? A standing fund. Only a few days ago, former Clinton Labor Secretary Robert Reich wrote that the Dodd bill “preserves the possibility that the Fed could launch another bank bailout.” Even Paul Volcker has said that the Dodd bill does not end too-big-to-fail.

The Times has it exactly backwards. What Shelby and others are trying to do is to close the loopholes in the Dodd bill that allow regulators to bail out creditors. The Dodd bill is the exact same framework passed in 2008 to handle a failure of Fannie Mae and Freddie Mac. Would the Times have us believe that just because shareholders and management took a hit, Fannie and Freddie were not bailed out?

If the Times cannot do a little research and accurately represent the facts, rather than simply publishing the White House’s talking points, then they’d serve the public better by slipping back into their slumber.

Mark A. Calabria is director of financial regulation studies at the Cato Institute.

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