Glenn Hubbard, dean of the Graduate School of Business at Columbia University.
Glenn Hubbard, dean of the Graduate School of Business at Columbia University. - 
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Kai Ryssdal: If there's one catchphrase for the financial crisis of the past couple of years, one thing that when you say it everybody knows what you're talking about, I'd say it's probably "Too Big To Fail."

Commentator and economist Glenn Hubbard says the reform bill by Senator Christopher Dodd that passed last week doesn't do enough about TBTF.

Glenn Hubbard: If we're serious about financial reform, then we should be worried about the Dodd bill. In particular, it seems to forget that "too big to fail" is the elephant in the room, and must be fixed.

The bill does nothing to get at "too big to fail." In fact, it makes the problem worse in what it would do and who it would help.

First, the what: The bill grants Washington too much discretion to bail out financial giants. It no longer contains a literal bailout fund, thanks to GOP opposition. But the proposed law would still allow Uncle Sam to bail out even quite sophisticated institutional creditors of investment banks who should be taking responsibility for judging which risks to take.

Just as bad, it would permit government officials to play favorites among creditors, as the Obama administration did in its bailout of automakers.

The Dodd bill doesn't just expand bailout possibilities -- it embraces them. It would retain Washington's power to make broad loan guarantees. And the Fed would be able to continue to accept dodgy assets as collateral for the loans it makes.

The result: The scaffolding for a permanent bailout authority. This is costly in taxpayer dollars and lost accountability. The ability to act in a crisis is important, but can be accomplished in other ways.

Now, the who: Who is "too big to fail?" The legislation would label some financial institutions as "systemically important" to be regulated by the Fed. This is a mistake.

Once we identify an institution as "too big to fail," it becomes more likely it will be bailed out. Investors know any money they put into it will be protected. And that would channel funds toward risky investments in financial giants. And it could discourage investment in smaller financial institutions.

We can do better than this, and we must if we want to limit "Bailout Nation" enthusiasm in Washington.

Memo to President Obama: Please ask congressional leaders for more than a subprime bill.

RYSSDAL: Glenn Hubbard ran the Council of Economic Advisors for President George W. Bush. He's now dean of the Graduate School of Business at Columbia University.