House Republicans Start New Congress By Telling The Same Old Lies About Wall Street Reform

The new chairman of the House Financial Services Committee, Rep. Jeb Hensarling (R-TX), this week released a statement announcing that “the work of our committee and subcommittees has perhaps never been more important to hard-working taxpayers.” However, Hensarling made it clear that he doesn’t have much interest in abandoning the playbook of former Chairman Spencer Bachus (R-AL), as the statement went on to say “during the past few years, we’ve seen a mind-numbing, innovation-choking, job-killing flood of federal red tape…And we’ve observed how Congress enshrined a ‘too big to fail’ bailout scheme into law.”

But there is no “too big to fail bailout scheme” in the Dodd-Frank financial reform law, which was signed by President Obama in 2010. The law lays out a clear process, called resolution authority, for unwinding a troubled financial firm without resorting to the sort of bailouts used in 2008. The law, in fact, explicitly bars the use of the process to bail out a firm. Former Rep. Barney Frank (D-MA) — whose name graces the Wall Street reform law — called the process “death panels” for banks.

But House Republicans love to perpetuate the myth that Dodd-Frank enshrines bailouts. In fact, recent House Republican budgets have called for the repeal of resolution authority, even though that would set the country back right where it was in 2008: with little choice but to bail out failing firms or risk a financial calamity. As economist Mark Thoma explained:

The resolution authority in Dodd-Frank is intended to fix this problem [of bailouts] by putting into place a procedure that is similar to what is done with ordinary banks. Resolution authority allows government regulators to take control of the banks, fix the problems, and then return them to the private sector. But, and this is important to recognize, Dodd-Frank also prevents the type of bank bailout that was done during the financial crisis.

Thus, the authority for the type of bailout that we saw during the crisis no longer exists. If if we now remove resolution authority there will be just one choice if a too big to fail firm gets in trouble — let it fail. That, and the cascading shadow bank failures that would follow, would be a disaster.

Rep. Maxine Waters (D-CA), the ranking member of the House Financial Services Committee, responded to Hensarling’s statement by saying, “our colleagues in the majority made a claim which misrepresents the Wall Street Reform and Consumer Protection Act…Dodd-Frank specifically ends too-big-to-fail by prohibiting the bailout of a failing financial institution. In fact, it mandates the orderly liquidation of such an institution, in which its executives are dismissed and its shareholders are wiped out.”

Outgoing Treasury Secretary Tim Geithner said in an interview that he believes “efforts to water down the Dodd-Frank financial reform law have largely fallen by the wayside.” But that hasn’t stopped House Republicans from employing the same rhetorical pot shots that they were using even before the law passed.

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