In The Immortal Words Of Admiral Ackbar, It's A TARP

Via Digby, turns out that resolution legislation to wind down "too big to fail" banks is really just enshrining TARP-style bailouts as standard operating procedure in the future. Mike Elk explains:

If a bank deemed "too big to fail" by the Fed takes out risky bets and its fails miserably, the other banks who were engaged in safe banking would have to bail them out. For the big banks that can afford to take huge bets this would simply give them more incentive to do it. If they lose, the smaller banks not deemed "too big to fail" would merely go under bailing out the big banks. So why not gamble big on Wall Street since every situation would be a win-win if you win, big profits if you lose a bailout and your competition goes out of business. Sounds like a good deal to me.

Furthermore, as Congressman Brad Sherman points out the proposed legislation would allow the government to bailout banks into the trillions of dollars without having to seek Congressional approval. It would allow the Federal Reserve to bail these banks out secretly without the publicly knowing about it.

This is just simply undemocratic. At least the last time we bailed them out, the bankers at least had to go to Congress and beg in shame. Now, ss Congressman Sherman point it the current legislation meant to reform Wall Street would actually be like "TARP on steroids".

The obvious question remains why has the House Financial Service Committee under the leadership of Barney Frank dramatically weakened time and time again President Obama's proposals to regulate Wall Street? Why have the committee members strayed so far from President Obama's plans to regulate Wall Street?

Perhaps the $223 million that the banking lobbyists spent on lobbying Congress in the first six months of 2009 alone. has something to do it. Or perhaps as the Wall Street Journal reports campaign contributions to committee members have increased dramatically as they consider financial reform.

Distilling all that down, it makes a fair amount of sense: If the punishment for taking a multi-billion dollar risk is that your competitors have to pay to bail you out, then this is a moral hazard clause on a world-breaking scale.

I've said before that the chief goal of the Obama administration's economic plan is the forced consolidation of the financial industry. This new bill seems to almost assure that only the Too Big To Fail banks will survive another round of bailouts, and that the Fed will have the power to do this without any oversight...because it was designed that way.

I didn't honestly think we could get worse than Bush on this. But there you are. And here Timmy is testifying that establishing these banks as "too big to fail" means no more bailouts.

He's lying to Congress, basically.