WASHINGTON – The White House and congressional Republicans sparred Wednesday over how to protect taxpayers against “too big to fail” financial institutions, sharply disagreeing on whether legislation backed by President Barack Obama would leave the government on the hook for bailing out firms whose failure might threaten the economy.
Obama, meeting with House and Senate leaders of both parties, insisted on a tough bill, specifically singling out oversight of previously unregulated financial instruments. How to regulate these products, known as derivatives, has become the latest point of friction between Democrats and Republicans.
But as the Senate prepares to begin debate in less than two weeks on legislation revamping regulation of the financial industry, the question of bailouts has elevated the sharp partisan differences over how to respond to the 2008 crisis that caused a near meltdown on Wall Street.
Both sides were testing populist messages, seizing on public disdain for big financial institutions. The White House argued opposition to the bill amounted to support for Wall Street banks; Republicans countered that the Obama-backed bill would perpetuate bailouts for Wall Street firms.
Obama, speaking briefly to reporters before the closed meeting began, said he was “absolutely confident that the bill that emerges is going to be a bill that prevents bailouts. That’s the goal.”
Treasury Secretary Timothy Geithner later said that the cost of taking down large failing financial institutions will be borne by big banks, not taxpayers. The House and Senate bills call for funds, financed by large financial institutions, to cover the costs of liquidating firms deemed too large to go through bankruptcy proceedings. Republicans have argued that the funds would not be sufficient and that taxpayers could still be on the hook to pay to deal with giant failures. They also argue that emergency loan authority by the Federal Reserve could also amount to a financial bailout.
The president is hoping the Senate acts quickly and passes a bill that can be easily reconciled with legislation that passed the House in December. But Democrats need at least one Republican to overcome procedural hurdles, and the looming question was whether the administration and Senate Majority Leader Harry Reid would simply seek to pick off Republican senators or build a coalition through bipartisan negotiations.
Reid signaled Wednesday that he was ready to proceed quickly. Reid had planned to bring the bill up the week of April 26, but officials said Wednesday that he now might seek to begin debate next week.
Sen. Christopher Dodd, the chairman of the Senate Banking Committee, agreed to meet again with the committee’s top Republican, Sen. Richard Shelby of Alabama. Aides said Dodd, D-Conn., believed he and Shelby could add language to the bill that would address the bailout question without fundamentally altering the bill.
Sen. Bob Corker, R-Tenn., a banking committee member who has negotiated with Dodd, said the rhetoric over potential bailouts had become overheated. “The fact is,” he added, “I think we could fix those in about five minutes.”
Earlier, Dodd angrily accused Republicans of “political chicanery” and appeared on the verge of abandoning talks.