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Today the House narrowly passed H.R. 4173, the Restoring American Financial Stability Act of 2010, which codifies into law the principle of “Too Big to Fail” when it comes to troubled Wall Street financial firms and puts the American taxpayer on the hook for future bailouts. The legislation dips into the TARP fund for nearly $20 billion, using it as a slush fund and guaranteeing that it will not be repaid. The bill also creates a new bureaucracy with unprecedented power to govern nearly every aspect of consumer financial products. The bottom line is that H.R. 4173 gives greater powers to the very regulators who were in many cases complacent as the 2007-2008 economic crisis brewed.

“There’s zero accountability for government regulators who were asleep at the switch,” said Congressman Bill Posey (R-Rockledge), who serves on the House Financial Services Committee and voted against the legislation. “Sadly, this bill leaves gaping holes that all but guarantee massive failures and future taxpayer bailouts. It provides implicit guarantees to large banks that they will be bailed out if they get in over their heads. How does that promote responsibility?”

“Among other things, this bill fails to hold the Securities and Exchange Commission (SEC) accountable for blatantly ignoring, until it was too late, the $65 billion Ponzi scheme run by Bernard Madoff. It does nothing to address the problems at government sponsored enterprises Fannie Mae and Freddie Mac, despite their role in acquiring $2.2 trillion worth of subprime loans and securitized subprime loans. This bill does nothing to reform the government mandated Community Reinvestment Act (CRA) which forced financial institutions to make trillions of dollars in additional risky loans. This legislation leaves intact government policies that played a major role in creating the financial crisis and we are doomed to see it repeated.”

H.R. 4137 would create a new systemic risk regulator called the Financial Stability Oversight Council charged with identifying risk to the financial stability of the nation, provides the FDIC the authority to wipe out shareholders of firms placed in receivership, and creates a special regulatory structure and resolution process for large financial firms, outside of bankruptcy, that uses taxpayer funds as the initially source to make creditors whole. “Without the possibility of bankruptcy, you can be assured that financial institutions will continue to take unnecessary risks,” said Posey.

“What’s the point of creating new agencies if the old ones won’t do their jobs? It does nothing to fix the real problems and, at best, it will now cost more to keep the status quo. There’s no incentive for regulators to hunker down and enforce the law and that’s very troublesome. Although proponents tout this with great rhetoric and hyperbole, the truth is that nothing in this legislation would prevent a recurrence of the current financial crisis.”