Dodd Bill Allows Wall Street Firms for ‘Backdoor Bailouts’

Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., raised ‘serious concerns’ about a provision in the financial reform bill, released this week by Sen. Christopher Dodd (D., Conn.), that seems to allow the Fed to rescue Wall Street firms if they play a critical role in the financial markets.

WSJ: “We do have serious concerns about other sections of the Senate draft which seem to allow the potential for backdoor bailouts through the Federal Reserve Board’s 13(3) emergency authority,” she told a conference of community bankers, hosted by the Independent Community Bankers Association (the Fed used its authority under Section 13 of the Federal Reserve Act to bail out AIG, injecting over $180 bln).

U.S. policy makers need to end the concept of “too big to fail, ” she added.

In response to Bair’s concerns, who has emerged as the only voice for restoring market discipline and eliminate the market’s perception that some firms are too big to fail, spokeswoman for Mr. Dodd said that that provision will be removed in the manager’s amendment, as the Senate Banking Committee debates the draft bill.

According to Huffingtonpost, the relevant section of Dodd’s bill appears to begin on page 1,302 of the 1,336-page bill.

“If the Congress accomplishes anything this year, it should be to clearly and completely end ‘too big to fail…Never again should taxpayers be asked to bailout a failing financial firm. It’s time that the big players understand that they sink or swim on their own,” Bair said.

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