Pardon my skepticism, but in his prepared remarks to accompany his signing today of the historic Dodd-Frank financial regulatory overhaul, President Barack Obama use some very finite words about the end of taxpayer bailouts.
“The American people will never again be asked to foot the bill for Wall Street’s mistakes,” the President said. “There will be no more taxpayer-funded bailouts. Period. If a large institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy.”
First of all, never is a long time.
Second, the untested regulatory wind down of failing systemically important institutions seems to require foresight and exquisite timing from regulators, something that hasn’t heretofore been on display in abundance.
Third, since there are no caps on size, one would presume that the large, important financial institutions in this country (those previously deemed too big too fail) will simply grow larger as they take advantage of strong market positions and economies of scale. That would make any future wind down all the more complex.
It would be a great thing if taxpayer money never again has to go to keep a systemically important financial institution from failing. But it’s a question whether the just signed reform law fully guarantees that.