Fallout: The Financial Crisis

GOP senators: Let some sick banks fail

John Dimsdale Mar 9, 2009
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Fallout: The Financial Crisis

GOP senators: Let some sick banks fail

John Dimsdale Mar 9, 2009
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TEXT OF STORY

Kai Ryssdal: Bipartisanship has not been a strong suit in Washington for a while now, so I suppose this most recent development shouldn’t really come as a surprise. But as Treasury Secretary Timothy Geithner burns the candle at both ends trying to come up with a strategy to prop up faltering American banks, a couple of high-profile Republicans are saying we’d be better off without ’em.

Our Washington bureau chief John Dimsdale reports on the growing political split over how best to save the financials.


JOHN DIMSDALE: Yesterday on ABC’s “This Week,” Alabama Senator Richard Shelby, the highest-ranking Republican on the Banking Committee, said it’s time to cut some big banks loose from government support.

RICHARD SHELBY: Close them down. Get them out of business. If they’re dead, they ought to be buried. We bury the small banks, we’ve got to bury some big ones.

Arizona Senator John McCain joined the shut’em down chorus. Former Fed official Vincent Reinhart says more Republicans are beginning to think the multiple bailouts of financial institutions like Citigroup and AIG have broken traditional ideological taboos against government intervention.

VINCENT REINHART: It really rankles the American people’s sense of fairness. There’s a suspicion that we are shoveling funds to people who are connected, who benefited on the upside and aren’t being asked to bear any of the downside.

The FDIC has already closed down 16 smaller banks just this year, but is reluctant to do the same with bigger banks. Policy analyst Tom Gallagher with the ISI Group says the concern is less political and more pragmatic.

TOM GALLAGHER: You don’t just take a big bank into the government for a short period of time. The government took over Continental Illinois in the 1980s and had some form of government ownership for seven years.

Still, piecemeal rescues of big financial institutions haven’t worked so far. And if bailout fatigue continues to spread in Congress, regulators may find themselves without the money they need to keep propping up big banks.

In Washington, I’m John Dimsdale for Marketplace.

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