During Fox News host Gregg Jarrett's interview with Sen. Jim DeMint, on-screen text displayed two "FOXfact[s]" that falsely referred to a "$50 bil[lion] bailout fund" contained in financial regulatory reform legislation. Jarrett then asked DeMint if President Obama and others were "deliberately trying to mislead the American public" about the nature of the fund. In fact, the fund would provide for the orderly liquidation of failing firms, not bail them out.
Fox, Jarrett repeat "bailout fund" falsehood
"FOXfact[s]" reference "$50 bil[lion] bailout fund." The following on-screen graphics displayed during Jarrett's interview on the April 27 edition of Fox News' Happening Now:
Jarrett asks if Dems are "deliberately trying to mislead" about the "bailout fund." Later during the interview, Jarrett asked DeMint:
JARRETT: [Senator] Chris Dodd and the president and [Treasury Secretary] Tim Geithner, all three say this is not taxpayer bailouts ad nauseam, and yet, among the 1,336 pages I see in the Dodd bill, failed firms must repay any amounts owed to the United States, which invites the question: Why would a firm owe Uncle Sam money, unless of course it's been bailed out? Do you think the president and Dodd and Geithner are deliberately trying to mislead the American public?
Fund does not finance bailouts
Bill calls for orderly "liquidation" of failing financial companies, not bailout, funded by industry, not gov't. Senate Finance Committee chairman Dodd's bill calls for the government to have the "necessary authority to liquidate failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard," including a $50 billion liquidation fund, paid for by industry assessments, to finance the orderly liquidation of large financial services firms. It further states of the fund:
The authority provided in this title shall be exercised in the manner that best fulfills such purpose, with the strong presumption that --
(1) creditors and shareholders will bear the losses of the financial company;
(2) management responsible for the condition of the financial company will not be retained; and
(3) the Corporation and other appropriate agencies will take all steps necessary and appropriate to assure that all parties, including management and third parties, having responsibility for the condition of the financial company bear losses consistent with their responsibility, including actions for damages, restitution, and recoupment of compensation and other gains not compatible with such responsibility.
PolitiFact: "[T]he bill makes it clear that the money must be used to liquidate -- not keep alive -- failing firms." In an analysis of Republican claims that the legislation establishes a $50 billion fund for future bailouts, PolitiFact.com called the claim false and stated, "The legislative language is pretty clear that the money must be used to dissolve -- meaning completely shut down -- failing firms." PolitiFact further stated, "The fund cannot be used to keep faltering institutions alive." From Politifact.com's analysis:
On March 22, 2010, the Senate Banking Committee, chaired by Sens. Christopher Dodd and Shelby, approved the overhaul by a party-line vote of 13-10. Highlights include new government authority to regulate over-the-counter derivatives and hedge funds, a new consumer financial product regulator within the Federal Reserve, and a process for dissolving institutions that are teetering on collapse.
The "Orderly Liquidation Fund" is the technical term for the $50 billion pot of money Shelby is concerned about. Only the largest firms would be required to pay into the fund. If a "systematically significant" firm is teetering on collapse, the Treasury, the Federal Deposit Insurance Corp. and the Federal Reserve would have to agree to use the fund to liquidate the firm. A panel of three bankruptcy judges would have to convene and agree within 24 hours that the company is insolvent. The fund is not meant to replace the bankruptcy process, but rather to provide a sort of emergency mechanism for the government to deal with very large, economically significant institutions.
So, the bill provides quite a bit of structure around how the government would decide which firms should be dissolved.
The legislative language is pretty clear that the money must be used to dissolve -- meaning completely shut down -- failing firms. Here's what Sec. 206 of the bill says:
"In taking action under this title, the (FDIC) shall determine that such action is necessary for purposes of the financial stability of the United States, and not for the purpose of preserving the covered financial company; ensure that the shareholders of a covered financial company do not receive payment until after all other claims and the Fund are fully paid; ensure that unsecured creditors bear losses in accordance with the priority of claim provisions in section 210; ensure that management responsible for the failed condition of the covered financial company is removed (if such management has not already been removed at the time at which the FDIC is appointed receiver); and not take an equity interest in or become a shareholder of any covered financial company or any covered subsidiary."
The fund cannot be used to keep faltering institutions alive.
Shelby also implies that the fund comes at a cost to taxpayers, saying the fund "can only reinforce the expectation that the government stands ready to intervene on behalf of large and politically connected financial institutions at the expense of Main Street and the American taxpayer." But remember, the businesses would pay into the liquidation fund, not taxpayers. The bill is very specific about that. So his underlying point here is incorrect. [Politifact.com, 4/16/10]
Wash. Post's Klein: "The Dodd bill makes bailouts less likely." Addressing "the Republican attack" that the financial regulation bill creates a "permanent bailout," The Washington Post's Ezra Klein wrote:
The Dodd bill makes bailouts less likely by empowering regulators and increasing transparency, raises a $50 billion fund from banks to pay for future too-big-to-fail bankruptcies, and then makes the outcome a predictable punishment rather than a chaotic rescue. That last is known as "resolution authority" -- as bloodless a word as one could possibly imagine -- and it wipes out both shareholders and management. It's all there in Section 206 of the bill: "Mandatory Terms and Conditions for All Orderly Liquidation Actions." What we call "resolution" would better be described as "execution."
Krugman: "Bailout" claim is "possibly the most dishonest argument ever made in the history of politics." During the April 25 edition of ABC's This Week, economist and Nobel laureate Paul Krugman stated that the claim -- which has been repeatedly advanced by Sen. Mitch McConnell, among others, and echoes language recommended by Republican strategist Frank Luntz to derail the bill -- is "possibly the most dishonest argument ever made in the history of politics."