Dodd’s bill makes too big to fail firms even bigger

We’re still finding out what exactly Congress passed with Obamacare, so it should be no surprise that there are a number of problems in the financial reform bill put forward by Sen. Chris Dodd, D-Conn. Heritage’s James Gattuso points out 14 problems here.

Most disconcerting? Perhaps the biggest problem facing Wall Street is the concept of firms that have gotten “too big to fail.” President Obama himself has said that he wants to end the problem of firms that are too big to fail. So why does section 113 of the bill allow a “Financial Stability Oversight Council” to identify firms that would “pose a threat to the financial security of the United States if they encounter ‘material financial distress,’” and subjecting them to “enhanced regulation.”

But a government designation of “too important to be allowed to fail” would inflate their ability to take on debt — the very thing that prompted this crisis. As American Enterprise Institute scholar Peter Wallison writes, “Designating large non-bank financial companies as too big to fail will be like creating Fannies and Freddies in every area of the economy.”

Read more from Gattuso here.

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