A Government Takeover of the Financial Sector?

As long as the Democrats continue to control Congress, we’ll have to endure an endless procession of initiatives for the federal government to take over industry after industry. Health insurance and college loans went under federal hegemony with passage of a single bill, known as “ObamaCare.”

Now, a new bill, referred to by the name of its chief sponsor, the ethically challenged Sen. Chris Dodd of Connecticut, aims to consolidate a federal takeover of the nation’s entire network of financial institutions.

As Peter Wallison of the American Enterprise Institute notes:

Does the bill, as [Republican Senate leader Mitch] McConnell said, “institutionalize too big to fail?” Of course. There can’t be any reasonable doubt about this. The bill authorizes the Fed to regulate all non-bank financial institutions that are “systemically important” or might cause instability in the U.S. financial system if they failed. . . .

The market will see immediately that the government has created Fannie Maes and Freddie Macs in every sector of the financial system where these large companies are designated for Fed regulation, including insurance companies, hedge funds, finance companies, bank holding companies, securities firms, and any other kind of financial institution the government wants to regulate. Since these firms will be too big to fail, they will be seen in the market–as Fannie and Freddie were seen–as ultimately backed by the government and thus safer firms to lend to than small firms that are not government backed. This will permanently distort the financial market, favoring large companies over small ones, and eventually force a consolidation of each market where these firms exist into a few large competitors operating under the benign supervision of the government.

In other words, this is another huge step toward fascistic corporatism, completing a de facto government takeover of today’s nominally “private” financial firms. These corporations would be reduced to the status of politically managed public utilities.

Professor Brad Smith of Capital University Law School stressed that latter point to me:

It’s important to note that this is not just about more bailouts, but it will be bailouts for the politically connected and favored. If the President and Congress think you are a “savvy businessman” (which means you support his party) you’ll be in the pink. But if you are a “corrupt Wall Street Titan” (meaning you don’t support his party) well . . . .

Absolutely true. This is not only a federal takeover, but more specifically a political takeover of major financial corporations. Smith adds: “Republicans can rally public opposition if they get this message out there consistently.”

Ah, but therein lies the rub. The Dodd bill faces a cliffhanger vote in the Senate, perhaps as early as next week. And whether it passes in its current form may come down to the vote of a single Republican “centrist,” Susan Collins of Maine, who could thwart a successful GOP filibuster.

The repercussions of this legislation are as significant as ObamaCare. But even some Democrats are wavering on it. It can still be defeated.

I urge you to contact your two U.S. senators today. (And while you’re at it, make sure to send a copy of your message to Sen. Susan Collins of Maine.) Tell them to oppose the pending financial reform legislation, the so-called “Dodd bill.” Tell them it represents “crony capitalism” at its worst, putting taxpayers on the hook for guaranteed bailouts of any and all financial institutions deemed “too big to fail.”

Tell them that this will give unfair market advantages to big, politically connected corporations over smaller, politically unfavored competitors. And that, in turn, will completely distort the financial-services marketplace, creating the false impression that large, government-backed institutions–like AIG, Fannie Mae, and Freddie Mac–are inherently safer for investors and lenders than their smaller rivals. That can only encourage the consolidation of the financial-services sectors into a few gigantic monopolistic institutions, adding to the “moral hazard” problem of rewarding irresponsible businesses at the expense of their responsible competitors.

And you might want to add that we, the voters, will have the last word if power-craving members of Congress continue to imagine that they are “too big to fail” in November.