What's the Republican alternative to bailouts? Ezra Klein Washington Post April 13, 2010

Alternative to Bailouts? Republican critique of financial regulation: Will lead to Permanent Bailouts Republican efforts to block financial regulation have hinged upon linking the reforms efforts to the bailouts. Senator Mitchel McConnell (R-Kentucky) "If there’s one thing Americans agree on when it comes to financial reform, it’s this … Never again should taxpayers be expected to bail out Wall Street from its own mistakes. We cannot allow endless taxpayer-funded bailouts for big Wall Street banks. And that’s why we must not pass the financial reform bill that’s about to hit the floor."

Alternative to Bailouts? Logic of Republican strategy: The strategy of linking financial reforms to develop themselves as initially proposed by Frank Luntz as a means of defeating legislation. Luntz: “The single best way to kill any legislation is to link it to the Big Bank Bailout."

Alternative to Bailouts? Is this a fair charge? Did the Dodd-Frank bill “institutionalize” a permanent federal bailout program? When compared to the status quo, absolutely not. Bailouts less likely under Dodd-Frank (Chris Dodd and Barney Frank) The Dodd bill makes bailouts less likely by: 1. Empowering regulators 2. Increasing transparency 3. Raises a $50 billion fund from banks to pay for future too-big-to-fail bankruptcies 4. Makes the outcome a predictable punishment rather than a chaotic rescue.

Alternative to Bailouts? Limits to Dodd-Frank: Does Not Solve “Too big to Fail.” The bill does not go far enough to prevent future financial crisis. In particular, it does not address the issue of banks that are big enough to potentially pose a systemic risk to the system if they failed. To solve “Too be to Fail” To solve too big to fail, you would need to: 1. Break up large firms 2. Insure the securities that banks trade 3. Impose high capital requirements on banks

Alternative to Bailouts? Who is Serious about Reforms? The way to judge whether someone is serious about ending bailouts is to see whether they propose one of these options, or some similarly radical solution. Republicans: Public Awaiting a Plan McConnell has not done that yet, and he does not do it in this speech.

2008 The Financial Meltdown Strength of Dodd-Frank: Better than the status quo Dodd-Frank is not perfect, but to do nothing and maintain the status quo would effectively to preserve an pro-bailout policy on the part of the federal government.