"Mistakes can be corrected by those who pay attention to facts but dogmatism will not be corrected by those who are wedded to a vision." -Thomas Sowell

BACKGROUND:
The Financial Stability Improvement Act, introduced by Rep. Barney Frank (D-MA), would give the FDIC the authority to manage "systemically significant" (i.e., politically significant) firms back to health, rather than allowing them to go into bankruptcy, even though bankruptcy is more efficient and does not expose the taxpayers to financial loss.  The Democrat proposal creates a permanent FDIC controlled bailout fund and would enable the FDIC to extend federal guarantees and loans to firms deemed to be systemically significant.  Below are ten reasons why such delegations would be catastrophic for taxpayers.

TEN REASONS TO PROTECT TAXPAYERS:

10. Troubled Firms Will Get Bigger:  On August 28, 2009, a Washington Post article on the government's efforts to bailout firms considered "too big to fail" stated, "When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.  Today, the biggest of those banks are even bigger...[N]o consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected."

9. Injects Politics Into the Resolution Process:  On October 27, 2009, a Wall Street Journal editorial on the evolution of TARP stated, "TARP quickly became a Treasury tool to save failing institutions without imposing discipline...TARP was then redirected well beyond the financial system into $80 billion in investments for auto companies. These may never be repaid but served as a lever to abuse creditors and favor auto unions.  TARP also bought preferred stock in struggling insurers Lincoln and Hartford, though insurance companies are not subject to bank runs and pose no systemic risk."

8. Lacks Transparency:  On March 17, 2009, the Wall Street Journal reported, "After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going. Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks [including Goldman Sachs and Merrill Lynch], municipal governments and other derivative counterparties around the world..."  AIG has received up to $180 billion in taxpayer funds.

7. Props Up Failed Firms:  According to a July 27, 2009 report on CNNMoney.com, "The first big government bailout of the financial crisis-the takeover of mortgage finance giants Fannie Mae and Freddie Mac-is poised to be the most expensive and complicated to complete.  Since Congress essentially wrote a blank check to the Treasury Department in July 2008 to do what needed to be done to inject capital into the two firms, Fannie has received $34.2 billion of direct government support while Freddie has received $51.7 billion."

6. Throws Good Money After Bad:  On November 2, 2009, an article in Fortune stated, "CIT filed for Chapter 11 bankruptcy protection Sunday.  The New York based small business lender said all its common and preferred shares will be canceled, which will wipe out the $2.3 billion Troubled Asset Relief Program investment the Treasury Department made last December."

5. Can't Afford the Current Bailout:  On September 24, 2009, Bloomberg reported, "The FDIC's insurance fund is going broke..."

4. Lacks A Record of Success:  On November 13, 2009, The Washington Post reported, "The Federal Housing Administration's cash reserves have shrunk to a level [.53 percent] far below what is required by law, and the agency could need taxpayer funding..."

3. Lacks Accountability:  According to the July 2009 Special Inspector General for TARP (SIGTARP) report, "The Federal Reserve has been one of the lead agencies responding to the financial crisis-increasing its balance sheet to more than $2 trillion to implement a wide range of programs designed to stimulate liquidity in financial markets, as well as several institution-specific interventions."

2. Exposes Taxpayers:  In a July 20, 2009 Bloomberg article, Neil Barofsky, of SIGTARP stated, "U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies..."

1. Creates a Purse Without Limits:  In recent testimony, Secretary Geithner refused to commit to limit the amount of taxpayer dollars that would be available to bail out large firms.