Mike Konczal, one of the best financial bloggers out there, is frustrated with conservative messaging on the Dodd bill.

Representative Paul Ryan is now going on television saying that he wants a market based trigger for resolution based on Hart-Zingales’ model of how to tear down a large systemically risky firm. Within seconds, he is also calling the Dodd Bill a bailout bill, and a bill that picks winners because a resolution authority fund would give out haircuts, and he thinks we need to do bankruptcy on large financial firms.
We’ve been through this before, but Hart-Zingales is a resolution authority based reform for how to deal with a large systemically failing financial firm like Lehman Brothers. This is not bankruptcy for large systemically failing firms.

That’s fair enough. Mike goes on to explain that the market-based trigger is only part of a broader process, and he’s absolutely right. (My colleague Chris Papagianis addressed this in a commentary for Economics 21, which Mike discussed at the time.) But does it make sense to address the contention advanced by Phil Swagel — that there are better approach to non-bank resolution authority?

Non-bank resolution authority could be constrained to allow the executive branch to provide only well-collateralized lending to a failing firm and not unlimited discretion as in the Dodd proposal. This would shift emergency lending authority for non-bank firms from the Federal Reserve to the Treasury Department. Such emergency lending could be further constrained by having any lending start a 30-day clock for Congress to approve the action. Failing congressional approval, the intervention would be unwound and the federal lending repaid without a loss to taxpayers (because it would be well-collateralized). A further constraint would be a tripwire that government lending in excess of $50 billion requires an immediate vote of Congress. Together these provisions would give considerable certainty that there would not be unlimited bailouts, while providing the Treasury Secretary with the additional tool to address a crisis.

My sense is that conservatives want a process centered on bankruptcy, one that, as Swagel puts it, “impose[s] substantial constraints on the ability of the government to put money into a failing firm.”

Am I wrong or is this a fairly straightforward way to increase democratic accountability?

Mike ends his post with the following:

I’ll end my venting now. But the Republicans and conservatives really seem to be late to this, and just throwing everything against the wall they can find.

On behalf of conservatives, I’m sorry that we were so late! But is that a reason to rush through a legislation that really does grant extraordinary discretion to regulators that could be abused by politically powerful financial firms, particularly when Swagel and others are offering alternatives that would increase democratic accountability, something I know Mike cares about?

Mike is convinced, as is his colleague Raj Date, that the Dodd bill adequately addresses the bailout problem. It’s not clear that it addresses the democratic deficit that Swagel zeros in on.