GOP Outraged At Obama Plan To Stop Future Wall Street Bailouts

By Justin "Filthy Liberal Scum" Rosario

On Monday, the Financial Stability Oversight Council (created by the Dodd-Frank Wall Street Reform and Consumer Protection Act) designated at least three financial institutions as “systematically important.” In other words, they are “too big to fail” and require increased oversight and regulation to keep them from dragging the entire financial sector under in a replay of the 2007-2008 collapse.

Via Bloomberg:

AIG and Prudential, in statements issued yesterday after a meeting of the Financial Stability Oversight Council, said they were notified of the proposed designations. Russell Wilkerson, a spokesman for GE Capital, said in an e-mail that his company also received a notice.

The council didn’t identify the companies it decided should be subjected to heightened Federal Reserve oversight. AIG, Prudential and GE Capital had previously said they were in the final stage of review.

The companies so labeled will have 30 days to contest the finding in court and try to have it reversed. Of course, Republicans are appalled at the idea of staving off another wide-spread collapse by identifying institutions that will drag down the entire sector should they fall:

The council’s move puts taxpayers at “greater risk of being forced to fund yet another Wall Street bailout,” Jeb Hensarling, a Texas Republican, said in a statement. “Designating any company as ‘too big to fail’ is bad policy and even worse economics.”

Actually, alerting stockholders that a financial giant is simply too large to be allowed to run unregulated is pretty damn smart. What better way to increase confidence than by knowing that these “too big to fail” institutions are going to be under increased scrutiny? Not only will this significantly reduce the kind of reckless behavior that wiped out trillions of dollars of wealth just 6 years ago, but it also means that the other banks are not in a position to take out the entire economy if one of them collapses. Republicans are always crying about how “uncertainty” is bad for the economy, aren’t they? This is one way of alleviating the dread uncertainty that your bank will implode and make all of your money disappear again.

Think of it this way: you live in a building built on columns that collapsed a few years ago. The building was rebuilt with the same blueprints. This is not a cause for feeling secure. However, you are informed that only three or so of the columns are crucial to the integrity of the building. If the other columns collapse, you’ll be fine, if a little shaken, as long as the main columns are still standing. Oh, and those main columns will be inspected on a regular basis now.

It’s understandable why a bank might not want this label; it could be taken as a sign that they are unstable and opponents of the vital regulatory reform mandated by Dodd-Frank will not hesitate to paint it that way. The reality is that the designation has nothing to do with the health of the institution, simply that it is large enough to cause massive collateral damage should it fail for any reason, even one not of its own doing.

Will it keep the gamblers from taking extraordinary risks and making extraordinary profits? Probably. But those extraordinary risks (otherwise known as “unfettered greed”) are what plunged the country into the worst recession in almost a century. Keeping the economy safe by pissing off greedy market manipulators? That’s a risk worth taking.