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HomeOff Topics News & Politics › CBO Confirms You’re on the Hook for Wall Street Bailout Bill
04-27-2010 12:58 AM  8 years agoPost 1
Dennis (RIP)

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Oregon

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CBO Confirms You’re on the Hook for Wall Street Bailout Bill

President Barack Obama’s favorite rhetorical device is to lecture the American people about what are and are not “legitimate” public policy arguments. So throughout the health care debate, President Obama insisted that it was “not legitimate” to claim that “a public option is somehow a Trojan horse for a single-payer system.” This despite the fact that Reps. Barney Frank (D-MA), Jan Schakowsky (D-IL), Anthony Weiner (D-NY) and Nobel Prize winning New York Times columnist Paul Krugman were all caught on video explaining to single-payer advocates that the public option was exactly that.

Now the President is bringing the same audacity to the financial regulatory debate, telling a handpicked audience at New York’s Cooper Union: “Now, there is a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process. But what is not legitimate is to suggest that we’re enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it’s not factually accurate.”

Before President Obama continues to go around accusing others of lacking legitimacy, he should read the official cost estimate of the financial regulation bill released by the Congressional Budget Office last Thursday. Assessing the budgetary impact of the $50 billion that “systemically important financial firms” would have to pay in assessments to pay for the bill’s “Orderly Resolution Fund,” the CBO writes:

The total amount collected from assessments is estimated to be about $58 billion through 2020. But such assessments would become an additional business expense for companies required to pay them. Those additional expenses would result in decreases in taxable income somewhere in the economy, which would produce a loss of government revenue from income and payroll taxes that would partially offset the revenue collected from the assessment itself.

In other words, these financial firms have to get that $58 billion dollars from somewhere, and that somewhere is you. Now the Obama administration may argue that they actually oppose the creation of the resolution fund. But American taxpayers should be even more frightened when they find out why the Obama administration opposes it. The New York Times reports: “The Obama administration does not support the $50 billion fund, partly out of concern that more money may be needed if one or more big financial firms ever collapse and that creating a fund could make it difficult to authorize more money.” AEI’s Peter Wallison details CBO how this provision could put taxpayer on the hook for much larger sums:

If the Dodd-Obama resolution plan is ever actually put to use, the direct or indirect costs could be many times greater. For example, the bill authorizes the Federal Deposit Insurance Corporation to borrow from the Treasury “up to 90 percent of the fair value of assets” of any company the FDIC is resolving. Yet one institution alone—Citigroup—has assets currently valued at about $1.8 trillion. The potential costs of resolving it (not to mention others) would be spectacularly higher than $50 billion. In short, the $50 billion in the resolution fund is a political number—a fraction of what the FDIC is authorized to borrow and spend.

Why would this vast sum be necessary? The Dodd bill has one answer. It says that the FDIC “may make additional payments,” over and above what a claimant might be entitled to in bankruptcy, if these payments are necessary “to minimize losses” to the FDIC “from the orderly liquidation” of the failing firm.

In other words, the agency would be able to borrow huge sums so that it could make more generous payments to creditors than they would receive in a bankruptcy. Generous payments to creditors would certainly make unwinding a firm “orderly”—but it would also encourage lending to the too-big-to-fail financial institutions while disadvantaging smaller, less favored institutions. This in itself will have a profound and destructive effect on competition.

This is the core problem of the Dodd-Obama Wall Street Bailout Bill: it gives the same regulators that missed the beginning of the last crisis the authority to engineer the exact same politically motivated bailouts (see General Motors, Chrysler) for the next one.

There is a better way. Congress should modernize bankruptcy laws to create an expedited method to restructure and close large and complex financial firms. Such an approach would not give regulators virtually unlimited powers and would free the process from political interference by giving control to an unbiased court system that already has extensive experience with complex modern firms.

http://blog.heritage.org/2010/04/26...t-bailout-bill/

My Comments: This is dirty stuff. Setting our tax dollars aside so that DC can bail out so called "To Big To Fail" corporations and irresponsible corporations simply give them welfare for failing. Sends a message to others that they can screw up either intentionally or not and DC will bail them out and get election money from special interests to the Democrats. Its just dirty.

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04-27-2010 03:25 AM  8 years agoPost 2
baby uh1

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St. James, Mo.

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Business as usual in DC!

Anything is possible if you don't know what you are talking about!

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04-27-2010 03:53 AM  8 years agoPost 3
Brian Bennett

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Dugway/Tooele UT, USA

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Or just maybe they cut back on the ridiculous bonuses paid out at the expense of the shareholders.

Team MRC-Hirobo and Model Avionics Rep

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04-27-2010 04:53 AM  8 years agoPost 4
nitro fun

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Oc ca

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Obama is going to make Carter look like a great president

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04-27-2010 05:49 AM  8 years agoPost 5
dilberteinstein

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texas - USA

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Obama is going to make Carter look like a great president
I think he already has that trick in the bag. He is now going for an unbeatable record.

90% of life is "showing up"

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04-27-2010 06:39 AM  8 years agoPost 6
mjy1288

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Mt Airy, MD USA

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Dennis,

For the past two weeks I have listened to pro Obama ad's that claim voting for this bill we will end "too big to fail" in cooperate America. What a crock.

Just one more bait and switch tactic by this administration. The Union big wigs are beating this greenhorn President of ours like a rented mule.

But I have always known he is a socialist, so none of his actions come to me as a surprise. When you are a student of Sal Olinsky and associate yourself with the likes of Reverend Wright as well as a known terrorist Bill Ayers for two decades, I can only imagine what might be coming down the pike

"Big" Mike

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