Mitch McConnell Twists Himself Into a Contortionist Pretzel of Lies on Financial Reform

STEPHEN PIZZO FOR BUZZFLASH

This weeks whooper award goes to Mitch McConnell for his mind-bending interpretation of the administration’s proposed financial services reform legislation:

“We cannot allow endless taxpayer-funded bailouts, That’s why we must not pass the financial reform bill that’s about to hit the floor. The fact is, this bill wouldn’t solve the problems that led to the financial crisis. It would make them worse. It will, in fact, lead to endless bank bailouts...” 

This little gem rolled off McConnell’s lips just days after he met in New York with well-heeled financial service executives at a fundraiser-- during which McConnell assured them the GOP would kill any new legislation that burdened Wall Street firms with new regulation or enhanced government oversight.

The truth, of course, is exactly the opposite of what McConnell claimed. The proposed legislation requires those who want to play in financial services honey-pot to form and fund their own crisis fund, much like the fund that has served banks and thrifts since the Great Depression, the Federal Deposit Insurance Corp (FDIC).

Every dime of money put in this fund to be used to stop the crash of one formerly “too big to fail” firm from knocking over other dominos, would come exclusively from this industry capitalized fund, managed by the Fed. No taxpayer dough... not a dime, not a penny, not an IOU. 

But wait, there’s more.

Even though the money in this fund comes exclusively from the financial service firms contributing to it, none of it would be used to prop up a failing firm. Instead the failing financial services company would first have to be liquidated. The money in the fund would be used to conduct a controlled liquidation of the company and to repay innocent vendors and customers impacted by such a failure. The company itself would be taken out behind the Federal Reserve’s barn and put out of our misery. This would assure that the only injured parties would be those responsible for mess they created; company executives, shareholders and bondholders.  Re-introducing real risk into the equation that way will assure that the next time a bubble starts expanding, “irrational exuberance” and just plain blinding greed, will be balanced by a healthy dose of fear. (It’s call Moral Hazard, and it’s a good thing when it’s balanced by the real prospect of real personal hazard.)

So, there were really two whoopers out of the GOP this week:

1) Calling this section of financial reform, a  formula for “endless bailouts” is wrong. The correct description would be "controlled liquidations” of failed or failing companies. 
2) And call these industry-funded liquidations “taxpayer bailouts” is simply a flat out lie.

So we have to stay on top of these Orwellian GOP lies. Remember how much traction they got on that  “death panel” nonsense during the health care debate? Progressives figured that gross mischaracterization of what were really just routine end-of-life counseling would be rejected by reasoning Americans. We were wrong -- on both counts. It turned out the number of reasoning Americans is distressingly lower than we assumed.

STEPHEN PIZZO FOR BUZZFLASH