Senator McConnell Is Completely Wrong On Financial Reform

By Simon Johnson

At one level, it is good to see the Republican Senate leadership finally express clear positions on the financial industry and what we need in order to make it safer. At another level, what they are proposing is downright scary.

In a Senate floor speech yesterday, Senator Mitch McConnell (Senate Republican leader) said,

”The way to solve this problem is to let the people who make the mistakes pay for them. We won’t solve this problem until the biggest banks are allowed to fail.”
Do not be misled by this statement. Senator McConnell’s preferred approach is not to break up big banks; it’s to change nothing now and simply promise to let them fail in the future.

This proposal is dangerous, irresponsible, and makes no sense. The bankruptcy process simply cannot handle the failure of large complex global financial institutions – without causing the kind of worldwide panic that followed the collapse of Lehman and the rescue/resolution of AIG. This is exactly the lesson of September 2008.
If a huge financial institution were to reach the brink of bankruptcy, the choice again would be: collapse (for the world economy) or rescue (of the very bankers and creditors who are responsible for the mess). The point of the reforms now before us is to remove that choice, as far as possible, from the immediate future.

There is only one plausible way to ensure banks that are currently “too big to fail” can actually fail: Make them substantially smaller. This is necessary but not sufficient for financial stability – a point we make most forcefully in 13 Bankers, where we support a whole range of complementary measures (including more capital, very tight regulation of derivatives, and tough consumer protection), as well as a broader approach to breaking the political power of these banks.

remainder: http://baselinescenario.com/2010/04/14/senator-mcconnell-is-completely-wrong-on-financial-reform/

We didn't bail them out to protect the execs who got us into this--they were safe no matter what. It was about all the secretaries, clerks and underlings who work for the execs who got us into this. Not bailing them out meant all those people would have lost their jobs, which would have added a million or more to the already dismal unemployment numbers. If the bailouts never happened we would have seen the recession become the great depression instantly. What happens to the middle class matters! This is why their free market Reaganomics fantasy doesn't work.

As for the fiscal aspect, its way more cheaper to prevent a disaster than it is to clean one up.

he and Bush are cousins. LOL. Join the repeal and replace mitch mcconnell club on facebook!

Join the Repeal and Replace Mitch Mcconnell club on facebook! Do Kentucky a favor!

Robert Reich has countered Fund with similar argument that Simon makes here. He asked Fund, would you agree there should
be a limit to how big banks can be. Fund's response, More importantly, we need to structure the banks so the risks they take
are fundamentally their own! Which in effect, would leave the us straight back to what happened in September 2008.

It's bad enough the Dodd's proposal is not nearly good enough, the Republicans want the same shit they always want...no regulation
that has any teeth....nothing proactive.

he is deliberately attempting to overthrow the Obama government.

He was quoting from a memorandum written by a political strategist, Frank Luntz. The bill he referenced does not allow banks to be bailed out. This makes him a hack, not a statesman.

They are on life support from the Federal Reserve. They are borrowing money at a .25 of 1% Tax payers then offer treasury bills at 3.5% to cover that money. Pay no attention to Mitch McConnell or CNN watch the money. Politics doesn't happen in front of cameras.

about the very idea that Republicans are defending the banks'profit margins and not creating a system that will not allow this to happen again, is a bad idea and nothing more than a political ploy.