Does a proposed U.S. financial reform bill root out the causes of the 2008 financial meltdown and ensure against a repeat, or does it perpetuate a flawed system that pushed the United States to the brink of economic collapse? Such is the debate surrounding a Democratic reform package in the Senate that has the backing of the Obama administration, but faces stiff opposition from Republican lawmakers.
When it comes to overhauling the rules governing large private financial institutions, there is one point of broad bipartisan agreement: the meltdown of 2008 and the taxpayer-funded bailout it necessitated must never be repeated.
U.S. Treasury Secretary Timothy Geithner on NBC's "Meet The Press" program said, "You saw a range of terrible things happen: catastrophic failures in judgment by people running these institutions, catastrophic failures in basic protections governments have to provide. And the consequences were devastating."
Under a Democratic bill, the U.S. central bank, known as the Federal Reserve, would be empowered to craft and enforce consumer protection rules for large financial institutions. Banks would be restricted in the types of investments they can make, and large financial institutions would be required to contribute to a bail-out fund that would be held in reserve in case of a future meltdown.
In addition, according to Geithner, the federal government would have better tools to deal with failing institutions.
"We want a system that acts preemptively to prevent these things from happening: constrain risk-taking by these large institutions," said Republican Senator John McCain of Arizona, who spoke on "Fox News Sunday." "If a large institution ever again manages itself to the point where it cannot survive on its own and has to come to the government for support, then the government will put it into receivership. It will wipe out shareholders. It will replace management. We dismember it, we sell it off so it cannot exist again. And we will make sure that the taxpayers are not exposed to a penny of loss."
But Republicans say the Democratic proposal is flawed. They argue that establishing a bail-out reserve fund will serve to perpetuate high-risk financial dealings by large institutions, and say the bill does nothing to limit the size of private financial firms, making government intervention at taxpayer expense more likely when those firms get into trouble.
"We cannot see [allow] a regulator scheme, which would allow a repetition of the meltdown that we have seen. We want to see a scheme that ensures the fundamental principle that never again is any institution [considered] too big to fail. I do not think that this present legislation can guarantee that," he said.
Numerous other Republicans are on record saying they cannot support the Democratic bill in its current form. But Senator Scott Brown of Massachusetts suggested that a pared-down version of the bill could attract bipartisan support.
Brown spoke on CBS' "Face the Nation" program, saying, "I, like many others in my state and throughout the country want banks to be banks. They do not want them to be casinos. They do not want them to make risky bets on our money. And I think this is an issue we can clearly come to common ground [reach bipartisan agreement] and just solve the problem."
Treasury Secretary Geithner says he has held exhaustive meetings with key Republicans to address their concerns, and that he believes financial reform will be enacted.
