McConnell’s Argument Against Financial Regulatory Reform

This morning, Senate Minority Leader Mitch McConnell (Ky.) spoke out against the financial regulatory reform bill expected to come up for a Senate vote sometime at the end of the month. The central gist of the argument is that the bill puts the taxpayers on the hook for future bailouts and does not restore moral hazard:

The bill gives the Federal Reserve enhanced emergency lending authority that is far too open to abuse. It also gives the Federal Deposit Insurance Corp and the Treasury Department broad authority over troubled financial institutions without requiring them to assume real responsibility for their mistakes. In other words, it gives the government a new backdoor mechanism for propping up failing or failed institutions.

A new $50 billion fund would also be set up as a backstop for financial emergencies. But no one honestly thinks $50 billion would be enough to cover the kind of crises we’re talking about. During the last crisis, AIG alone received more than three times that from the taxpayers. Moreover, the mere existence of this fund will ensure that it gets used. And once it’s used up, taxpayers will be asked to cover the balance. This is precisely the wrong approach.

Far from protecting consumers from Wall Street excess, this bill would provide endless protection for the biggest banks on Wall Street. It also directs the Fed to oversee 35 to 50 of the biggest firms, replicating on an even larger scale the same distortions that plagued the housing market and helped trigger a massive bubble we’ll be suffering from for years. If you thought Fannie and Freddie were dangerous, how about 35 to 50 of them?

The speech encapsulates Republican opposition to the bill: That it does too much to stymie free markets and to prop up Wall Street at the expense of consumers.