GOP senators: Let some sick banks fail
Republican Senators Richard Shelby and John McCain are urging President Obama to let some big banks fail instead of propping them up with federal funds. John Dimsdale reports on the growing rift over how to best save the banking industry.
A man locks the door to a First National Bank of Nevada branch last July, after it was closed by federal regulators in Las Vegas, Nev. (Ethan Miller/Getty Images)
More on Politics, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: Bipartisanship has not been a strong suit in Washington for a while now, so I suppose this most recent development shouldn't really come as a surprise. But as Treasury Secretary Timothy Geithner burns the candle at both ends trying to come up with a strategy to prop up faltering American banks, a couple of high-profile Republicans are saying we'd be better off without 'em.
Our Washington bureau chief John Dimsdale reports on the growing political split over how best to save the financials.
JOHN DIMSDALE: Yesterday on ABC's "This Week," Alabama Senator Richard Shelby, the highest-ranking Republican on the Banking Committee, said it's time to cut some big banks loose from government support.
RICHARD SHELBY: Close them down. Get them out of business. If they're dead, they ought to be buried. We bury the small banks, we've got to bury some big ones.
Arizona Senator John McCain joined the shut'em down chorus. Former Fed official Vincent Reinhart says more Republicans are beginning to think the multiple bailouts of financial institutions like Citigroup and AIG have broken traditional ideological taboos against government intervention.
VINCENT REINHART: It really rankles the American people's sense of fairness. There's a suspicion that we are shoveling funds to people who are connected, who benefited on the upside and aren't being asked to bear any of the downside.
The FDIC has already closed down 16 smaller banks just this year, but is reluctant to do the same with bigger banks. Policy analyst Tom Gallagher with the ISI Group says the concern is less political and more pragmatic.
TOM GALLAGHER: You don't just take a big bank into the government for a short period of time. The government took over Continental Illinois in the 1980s and had some form of government ownership for seven years.
Still, piecemeal rescues of big financial institutions haven't worked so far. And if bailout fatigue continues to spread in Congress, regulators may find themselves without the money they need to keep propping up big banks.
In Washington, I'm John Dimsdale for Marketplace.
Comments
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From Palo Alto, CA, 03/10/2009
I may not completely agree with the Republicans on what they propose, and their motivation is simple adherence to ideology but at least SOMEONE in congress is talking about developing their own ideas instead of rubber stamping with minor tweaks what two executive branches have handed to them (Just like in 2001 and 2002. . .).
Finally I am starting to hear some creativity, such as "we need a working banking system; let some fail, and help the healthy parts of the banking system grow. " Make stimulus funds available to existing HEALTHY institutions (i.e. not banks who are so nervous they will only hold it all in reserve) as a pot of money they can use to expand their loan capacity. Wells Fargo is in good shape. . help them fill the gap.
We also have this whole industry of credit unions. Make funds available to them to double their lending capacity, and let up on some of their more onerous restrictions that limit their size! Too bad we have already spewed a trillion dollars or so into maintaining zombies, a stragtegy that has NEVER worked.
I am disappointed in congress due to the quick apporval of TARP, without even considering any other strategies. The window dressee the original plan, just to put their mark on it. I heard NO debate about the structure of the bill or any counter proposal; unacceptable considering congress spent 3-4 weeks Longer(?) before the final vote. Where was due diligence?
There are times when congress needs to act quickly, but when they spend weeks to a month or so on a huge decision, there is time for counterproposals. There was NO excuse for their lack of vision during a crisis. I always voted for Dems for congress, but last election I found an almost sane green (the Republican was further from moderate than Kucinich!) for the house, and if either of my Dem senators were up, I would have been stretching to find an alternative there too
From UT, 03/10/2009
Richard, the isolation and liquidation you mention appears to me to be the same as these senators are proposing. Why should the govt. I.e. Taxpayers take any of the risk or burden associated with bank nationalization when the market can establish the true value of those assests. If the market doesn't absorb the losses of over-valued products why should the taxpayer?
From Spotsylvania, VA, 03/09/2009
The united states economy is like no other in size and scope.
Still, having a big bank buried might wake the entire sector.
Citi and BOA both have profitable assets that would succeed without the stench of the parent company over them.
From Ann Arbor, MI, 03/09/2009
Thankfully, there is Terry Gross and her program, Fresh Air. She finds the right kind of people to interview about the financial crisis. She interviewed Salmon Johnson of MIT and the Peterson Institute. He was an IMF representative who was sent into small countries to reorganize their financial sectors after a major collapse. He described advising a nationalization of the failing sector, isolate the valuable assets, make them available to private investors and liquidate the failed aspect. He would advise the US to do the same and not dilly-dally but get on with the task.
You, however, came up with some reactionary Republican senators who don't see anything in the modern world except through the blinders of their ideology. It's just another indication of your ultra-right propaganda. You can take it and shove it.
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