Financial Reform: Down the Rabbit Hole, Permanently

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Posted: Apr 23, 2010 11:45 AM

Guest Post by Robert Romano, Americans for Limited Government

Yesterday, Barack Obama presented his plans to take over the nation’s financial system in a speech in the Great Hall at Cooper Union. Although they would not know it if they happened to listen to his speech, the American people are actually being led down the rabbit hole.

It will be a land of government takeovers and bailouts. Where no investment is safe. Where the government, through the banking system, can levy an unlimited amount of taxes and engage in limitless spending without any vote in Congress. And it will never end.

Americans for Limited Government yesterday published a backgrounder analyzing in detail this takeover, and the indelible, irrevocable impact it will have upon their rights to control their own financial affairs and to keep their private property.

But not to worry. Obama assured the American people that “it is essential that we learn the lessons from this crisis so we don’t doom ourselves to repeat it,” although his reform would do nothing to rein in Fannie, Freddie, the Fed, and the FHA that did so much to cause the crisis, as ALG News has previously reported.

And that he believes “in the power of the free market,” but it appears his only interest is actually taking complete control over the private sector. How?

For starters, the Dodd bill would authorize the Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and the Treasury Secretary to put into receivership any company that is deemed to be in danger of default that is “substantially engaged in activities… that are financial in nature.”

One is reminded that both GM and Chrysler, neither of which are financial companies, were deemed by then President George Bush to be critical to the economy: “By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time.” They were not financial companies, and there were private sector alternatives, but government put them into the Troubled Asset Relief Program for loans anyway.[# More #]

As a corollary, it would also grant the Fed and Treasury Secretary the power to define what constitutes “financial” activities. And, it would let the Fed declare any company or institution to be a “non-bank financial company” subject to seizure under a revolving $50 billion “orderly liquidation fund” operated by the FDIC and overseen by the Secretary.

To finance the fund, the Dodd bill would give the FDIC the power to levy assessments on about 60 bank holding and insurance companies totaling $50 billion or more in consolidated assets. As reported by the Congressional Budget Office, those assessments would actually be paid for the by American people: “the ultimate cost of a tax or fee is not necessarily borne by the entity that writes the check to the government. The cost of the proposed fee would ultimately be borne to varying degrees by an institution’s customers, employees, and investors, but the precise incidence among those groups is uncertain.”

Importantly, there would be no limit on how much money could flow through the “orderly liquidation fund” in total, allowing the government to seize an unlimited number of companies. The FDIC would then issue securities to be sold to the Treasury Secretary of seized firms, and the Secretary could either keep or sell those securities.

The legislation would require no Congressional authorization for firms to be seized, the funds to be spent, or new assessments to be levied by the FDIC to replenish the fund.

Finally, and this is the kicker, the bill would prevent a seized firm from challenging its status in federal courts, as reported by talk show host Mark Levin. This, despite the fact that the seizure would be a clear violation of the owners’ Fifth Amendment rights against deprivation of property without due process of law.

Adding insult to injury, Senate Majority Leader Harry Reid is forcing the Senate vote on the bill — on Monday. With time running out, the only hope the American people now have is for their elected representatives to defeat this legislation. Otherwise, there may not be any way out of this rabbit hole.