A third-party group, the Committee for Truth in Politics, is out with an ad blasting the House’s "Wall Street Reform and Consumer Protection Act." The group, which has no Web site and has made no disclosures to the Federal Election Commission, was created by a North Carolina GOP operative, according to National Public Radio, and is represented by lawyer James Bopp, who sued the FEC on the grounds that the group shouldn’t have to file any kind of spending report to that agency.
The ad has run in 35 markets in Arkansas, Connecticut, Colorado, Illinois, Iowa, Montana, North Dakota, Pennsylvania, Virginia and Wisconsin, according to the Campaign Media Analysis Group, a Kantar Media Solution.
The ad, in minute-long and 30-second versions, claims in on-screen graphics that the “financial reform bill” amounts to "[a] new $4 trillion bailout for banks. If they fail. Again. $4,000,000,000,000."
Does it? Not exactly. The bill (H.R. 4173), which passed the House with no Republican support, does say that "in unusual and exigent circumstances" the Federal Reserve can, with approval from an oversight council and the secretary of the Treasury, loan money to help prop up financial entities. And such monies are capped at $4 trillion. But the Federal Reserve already had such authority — with no stipulated cap on the amount it could loan. And banks that "fail," as the ad says, could be dissolved by regulators, according to another provision in the bill. Any money needed for the dissolution would come from a $150 billion fund formed at least partly by fees collected from large financial institutions.
When we asked Bopp for support for the ad, he pointed us to a Bloomberg News piece by columnist David Reilly, in which Reilly said of the legislation: "It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for ‘no-more-bailouts’ talk. That is more than twice what the Fed pumped into markets this time around." (It’s important to note that this is an opinion piece; as Bloomberg says at the bottom of the column: "David Reilly is a Bloomberg News columnist. The opinions expressed are his own.")
The bill certainly does give the Fed the authority to loan as much as $4 trillion, but the ad obscures the fact that the Fed already had such authority to act in "unusual and exigent circumstances" without any cap. H.R. 4173 modifies Section 13 (3) of the Federal Reserve Act, which says that "[i]n unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank" to lend money to "any individual, partnership, or corporation." (For more on this interesting paragraph, see the Federal Reserve Bank of Minneapolis’ write-up on its history.)
The Fed tapped this "rarely used legal authority," in the words of the Wall Street Journal, in 2008 to lend money to AIG and Bear Stearns. The House bill modifies that authority (see Sec. 1701) to say "in unusual and exigent circumstances" the Fed could loan such monies when it has "written determination … of the Financial Stability Oversight Council, that a liquidity event exists that could destabilize the financial system." That approval would come with a vote of two-thirds of the council members and consent of the Treasury secretary, after the president certifies that an emergency exists. Plus, the bill says the secretary and Fed board should support such action only if they believe "there is at least a 99 percent likelihood that all funds disbursed or put at risk by such action" plus interest "will be repaid to the Federal Reserve System."
We take no position on whether the $4 trillion cap is too big or too small, or whether the authority itself should or should not be granted. But there’s nothing in the bill that requires that banks get this loan money at any point in time, a fact that may well be lost on viewers of the ad.
Steve Adamske, communications director at the House Financial Services Committee, told us the $4 trillion cap is "a number no one will ever reach." Some economists, however, believe the current bank bailout could eventually require between $1 trillion and $4 trillion in loans to banks — with or without this piece of legislation. The bill’s provision, Adamske says, is "a way that didn’t constrain the Federal Reserve and the president’s ability to save the economy and at the same time [made] sure there are checks on what the Federal Reserve does. There are not now."
Adamske argues that the bill "makes it harder" for the Fed to provide the money. And he objects to the claim that the $4 trillion is available "if [banks] fail."
"That’s 1,000 percent incorrect," he says, pointing to another provision in the bill that gives regulators the authority to dissolve "systemically important" firms that are failing. "They will use a fund paid for by the industry to put it out of its misery" and "stop any spread of this sort of financial contagion that can take down the financial system or harm the economy."
Indeed, the bill establishes a "Systemic Dissolution Fund" that would "facilitate and provide for the orderly and complete dissolution of any failed financial company or companies that pose a systemic threat to the financial markets or economy," and "ensure that any taxpayer funds utilized to facilitate such liquidations are fully repaid from assessments levied on financial companies that have assets of $50,000,000,000, adjusted for inflation, or more." (Page 397)
We last wrote about a Committee for Truth in Politics ads in Oct. 2008, calling it "absurdly wrong." That spot claimed that then-state Sen. Barack Obama had been the only member to vote against a bill that would remove good behavior allowances for imprisoned sexual offenders. But, as the Senate record made clear, Obama had pushed the wrong button and immediately corrected himself.