To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.<\/p>\n
When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.<\/p>\n
Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. \u201cIt will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,\u201d\u009d Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers\u2019 bills are being negotiated.<\/p>\n
It wouldn\u2019t end AIG\u2019s rescue, though. The reason AIG hasn\u2019t failed is that the Fed and the Treasury continue to stand behind it. There\u2019s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.<\/p>\n