Speak Up Memo

The Voice of Young ConservativesTHE WEEK OF APRIL 26, 2010

The Outrage

Used and forgotten. In 2008, young people gave Democrats their vote and in 2009Democrats showed young people the door. Well it’s time to tell the Democrats tostop and listen up. From health care to student loan reform, Democratic policieshave consistently ignored the needs of our generation. If we want change, 2010must be different.

What You Can Do About It

Speak up! As a conservative we must begin to win hearts and minds before we canwin elections. The process starts by educating people about what we truly believe. It starts with you in the classroom. We’ll arm you with the facts you need to win the argument. It’s your job to carry themessage on to your campus. It’s your job to speak up! By engaging ourselves in thedebate, we’ll spread the message of conservatism – the message of smallgovernment, Xiscal responsibility, and individual rights – to one campus, oneclassroom, and one student at a time.Over the next Xive weeks the CRNC will be looking into the growing entitlements that left unreformed will doom this country’s Xiscal future. We must realize that government is not the solution to the problem…it IS the problem.

This Week’s Theme: Financial Regulatory Reform

The Promise

: President Obama continues to push for regulatory reform saying that it is, “essential that we learn the lessons of this crisis, so we don’t doom ourselves torepeat it. And make no mistake, that is exactly what will happen if we allow thismoment to pass.”

The Reality

: The current reform package being debated in the Senate fails toaddress the major causes of the crisis. The President is more concerned with passingsomething quickly to score political points with voters in the upcoming electionsthan creating a workable policy that solves the structural problems in the Xinancialsector.

Fact 1

Economists Agree - The Democrats’ Plan Doesn’t Work

A group of former regulators, left‐leaning economists, and Democratic insiders havewritten aletterto Senate Majority Leader Harry Reid examining the myriad Xlaws of the current Xinancial regulatory reform bill. The letter says that,“Nineteen months after the most devastating Xinancial crisis since theGreat Depression, our Xinancial system remains at risk. Neither the billpassed earlier this year by the House, nor the one currently underconsideration in the Senate would have prevented the crisis. Without serious restructuring, they will not prevent a future crisis.”The letter highlights eight things that the bill must do to thwart a future crisis.Among them:“Eliminate a perpetual system of government sponsored corporatebailouts Xinanced by the government or private industry.”Unfortunately, rather than eliminate taxpayer bailouts of the Xinancial sector theDemocrats legislation institutionalizes the process. In addition to the letter aninformalsurveyof economists and regulatory experts from across the politicalspectrum found that not one single expert of any party agreed the Democratslegislation would end “too big to fail.”The debate over the bailouts has centered around the $150 billion in the House billand $50billion in the Senate bill used as a “liquidation fund.” However, thisoverlooks other provisions of the bill that would institutionalize “too big to fail.” Forinstance• Section 204 authorizes the FDIC to “make available...funds for the orderlyliquidation of a covered Xinancial institution” which could be used to pay off the Xirm’s creditors• Section 210(n)(9) the Treasury Department creates a line of credit forgovernment funding to failing Xirms• Section 1155 the FDIC is authorized to guarantee the debt of “solvent depository institutions” if regulators declare there is a liquidity crisis.Little wonder then Brad Sherman (D‐CA), Member of the House Financial ServicesCommittee said, “The Dodd bill has unlimited executive bailout authority. That’ssomething Wall Street wants but doesn’t dare ask for.”

Fact 2:The Plan Ignores One of the Primary Creators of the Financial Crisis

Democrats’ anger has solely been directed at Wall Street but have failed to addresstheir own role in the crisis. To that end Investor’s Business Daily recently wrote that,

“Democratic plans don’t address government’s fundamental role inthe crisis. Politicians and regulators pressed lenders to vastly expandcredit to shaky borrowers and looked the other way as standardswent out the window.”One of the largest governmental culprits have been Fannie Mae and Freddie Macwho made ever‐riskier loans in the hopes of allowing more people to own a home.Laudable goal but fraught with risk, especially to the new homeowners who found it difXicult, and ultimately impossible, to stave off foreclosure.The worst part is that this crisis was predictable. In 1999 the New York Timeswrote that,“In moving, even tentatively, into this new area of lending, Fannie Maeis taking on signiXicantly more risk, which may not pose anydifXiculties during Xlush economic times. But the government‐subsidized corporation may run into trouble in an economicdownturn, prompting a government rescue...”Nevertheless, Democrats continue to ignore Fannie and Freddie’s role in the crisisand failed to make it part of their reform plan. Barney Frank, chairman of the HouseFinancial Services Committee, went as far as tosaythat “[Republicans] have not yet made a policy case why GSE reform needs to be a part of regulatory reform.”Unfortunately, for Mr. Frank, economists from his own party disagree with himsaying that a reforms must be “considered incomplete” unless they “[e]stablish atimeline for the resolution of Fannie Mae and Freddie Mac.”

Fact 3:Big Government Only Adds to the Problem

The Federal Reserve is the centerpiece of the Senate legislation. Under the bill, theFed would be the chief regulator of banks with $50 billion or more in assets. That would put hundreds of banks within the Fed’s authority, including banking giantsBank of America and Citigroup. It would also gain the authority to regulate, awhenever it deemed necessary to break up, corporations that are “systemicallyimportant.” Finally, the bill creates a Financial Stability Oversight Council that identiXies and protects the Xinancial system from threats. As part of the Council’spower it can enable the Fed to order Xinancial institution to break itself up, stop certain practices, or even go out of business.But is a new all‐powerful government entity really the answer? Just last year a WallStreet Journal story called “Senate Democrats Seek Sweeping Curbs on the Fed”outlined Chris Dodd’s (D‐CT) position on the Fed. In the article he is quoted assayingthat,“Over the last number of years when [the Fed] took on consumerprotection responsibility and regulation of bank holding companies, it