Dodd-Frank Act: The Persistence of "To Big to Fail"

From the House Financial Services Committee from Oct. 2012-A very interesting and LONG (9 pages) summation of the Dodd-Frank Act. I only copied the first page or so.

The Dodd-Frank Act, the Persistence of “Too Big to Fail,” and the Institutionalization of Government Bailouts

Of all the claims made by the proponents of the Dodd-Frank Act, the most important are these: that the Dodd-Frank Act ends “too big to fail” and that it protects the American taxpayer “by ending bailouts.” In light of the disastrous events of 2008, in which Americans saw their government rescue first Bear Stearns, then AIG, Citigroup, and Bank of America — among others — and when the only regret voiced by those who orchestrated the bailouts was that they couldn’t bail out Lehman Brothers because it, too, was “too big to fail,” the promises to end “too big to fail” and “end bailouts” are at the heart of the Dodd-Frank Act. The Dodd-Frank Act can be judged to succeed or fail on whether it makes good on these two claims.

 But if we judge the Dodd-Frank Act on whether it “ends too big to fail” and whether it “ends bailouts,” we have no choice but to conclude that the Dodd- Frank Act is a failure. The largest financial institutions in America remain “too big to fail”; in fact, they are even bigger now than they were at the height of the crisis. And the Dodd-Frank Act most certainly did not end bailouts; instead, it institutionalized them and made them permanent in the form of the “Orderly Liquidation Authority” set forth in Title II of the Act. American taxpayers are no better protected against bailouts than they were in 2008: if anything, they are even more exposed to the danger that government bureaucrats will pick their pockets to bail out the creditors of the next “too big to fail” institution that finds itself on the brink of failure.

Democrats’ False Claims On Dodd-Frank Ending Bailouts:

“This legislation makes common-sense reforms that end the era of taxpayer bailouts and 'too-big-to-fail' financial firms.” - Rep. Nancy Pelosi floor remarks, 6/30/10

“Because Of This Reform, The American People Will Never Again Be Asked To Foot The Bill For Wall Street’s Mistakes. There Will Be No More Taxpayer- Funded Bailouts - Period.” - President Obama remarks on passage of regulatory reform, 7/15/10

“Let Me Say That Again Because It Is One Of The Most Important Parts Of This Bill: No More Bailouts Because No Bank Is Too Big To Fail.” - Senator Harry Reid  

The Persistence of Too Big to Fail 

 Anyone who looks at the rationale offered for the bailouts of 2008 — that certain financial institutions were “too big to fail” and therefore had to be rescued at taxpayer expense, no matter how incompetently run they were or how big the risks they took—has to be puzzled at the structure of the financial services industry in 2011. Surely, if the problem was that these institutions were “too big to fail,” the solution cannot be to make these institutions . . . even bigger. Yet that is exactly what has resulted from the bailouts, the misguided policies adopted by panicked regulators, and the implicit subsidies that the Dodd-Frank Act offers to behemoth financial institutions to stay as large as they possibly can.

When the financial crisis struck the nation in 2008, officials pumped hundreds of billions of dollars into the country’s biggest financial institutions because these officials feared that their failure would crash the entire financial system. But in 2011, the country’s financial system is far more concentrated and less competitive than it has ever been. The five largest financial institutions control more than half of the industry’s assets, which is equal to almost 60 percent of GDP. The largest 20 institutions control 80 percent of the industry’s assets, which amounts to about 86 percent of GDP. Common sense says that “if they are too big to fail, make them smaller.” No one can say with a straight face “if they are too big to fail, make them even bigger.” Yet that is exactly what has resulted from misguided government policies and the Dodd-Frank Act.

See the rest here: 

http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=311048