{"id":535469,"date":"2010-04-20T12:37:08","date_gmt":"2010-04-20T16:37:08","guid":{"rendered":"http:\/\/blogs.reuters.com\/james-pethokoukis\/?p=3727"},"modified":"2010-04-20T12:37:08","modified_gmt":"2010-04-20T16:37:08","slug":"3-tbtf-loopholes-in-the-dodd-bill","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/535469","title":{"rendered":"3 TBTF loopholes in the Dodd bill"},"content":{"rendered":"<p>The wonderful <a href=\"http:\/\/www.manhattan-institute.org\/html\/miarticle.htm?id=6132\">Nicole Gelinas<\/a> explains why she does not think the Dodd bill ends TBTF (as outlined by me):<\/p>\n<blockquote>\n<p>1) Title II, which starts on p. 107, explains how \u201corderly liquidation authority\u201d would work. When the Treasury and a panel of judges have determined that a financial firm is unsafe for bankruptcy, the FDIC would take over that firm. In \u201cliquidating\u201d the company, the FDIC would figure out who \u2014 of the firms\u2019 lenders, other creditors, and shareholders \u2014 would get what.\u00a0On the repayment list is \u201cany amounts owed to the United States, unless the United States agrees or consents otherwise\u201d (italics mine).\u00a0That speaks for itself on whether taxpayers will be \u201cexposed to a penny of risk of loss.\u201d<\/p>\n<p>2) More important, though, what does it mean to \u201cliquidate\u201d a company? &#8230;\u00a0The bill does not ensure that lenders will take losses. Instead, it merely directs the FDIC to operate under a \u201cstrong presumption\u201d (p. 131) that \u201ccreditors and shareholders will bear the losses of the financial company\u201d (p. 132).<\/p>\n<p>3) A hundred-odd pages later, the bill offers a big loophole for lenders in a crisis. It says that the FDIC, \u201cwith the approval of the [Treasury] Secretary, may make additional payments or credit additional amounts to or with respect for the account of any claimant or category of claimants of the covered financial company\u201d \u2014 that is, to lenders \u2014 \u201cif the [FDIC] determines that such payments or credits are necessary or appropriate to minimize losses\u201d to the FDIC (p. 241).\u00a0It wouldn\u2019t be unreasonable for a lender to expect the government and the FDIC to use all of the discretion the bill affords them to guarantee financial firms\u2019 debt in a future systemic financial crisis, just as happened this time around.<\/p>\n<p>4) Finally, Geithner\u2019s language \u2014 he wants to \u201cdismember\u201d failed financial firms \u201csafely\u201d \u2014 is interesting.\u00a0Three months ago before Congress, Geithner had this to say about the AIG bailout: \u201cWe didn\u2019t rescue AIG. We intervened so we could dismember it safely.\u201d\u00a0True, that was the government\u2019s intent in the fall of 2008. But AIG is still with us; the stock trades at nearly $40.<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>The wonderful Nicole Gelinas explains why she does not think the Dodd bill ends TBTF (as outlined by me): 1) Title II, which starts on p. 107, explains how \u201corderly liquidation authority\u201d would work. When the Treasury and a panel of judges have determined that a financial firm is unsafe for bankruptcy, the FDIC would [&hellip;]<\/p>\n","protected":false},"author":1063,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-535469","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/535469","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1063"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=535469"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/535469\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=535469"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=535469"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=535469"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}