We've been working hard to uncover the myths and truths behind the Senate Democrats' permanant TARP bill. We thought you might be interested in our findings. Below, you'll find the an excerpt of the report published today:
MYTH #1 - The bill does not provide bailout authority.
REALITY: TARP II authorizes the FDIC to use resources to make payments to anyone in any amounts. For example, Section 204(d) of the bill would give the FDIC broad authority to use the resolution fund in whatever way the FDIC determines to be "necessary or appropriate." Also, the bill provides the Fed and the FDIC with broad discretion to pay creditors more than they would receive in bankruptcy.
MYTH #2 - TARP II prevents taxpayer funded Wall Street bailouts.
REALITY: TARP II attempts to wipe out the shareholders and management of firms placed in receivership, but the bill provides the FDIC with significant latitude to bailout counter-parties and creditors. Such discretion given to government regulators, with a mandate to prevent systemic failure provides an incentive for the FDIC to access taxpayer funds, including a bailout fund, unlimited FDIC guarantees, and a Treasury line of credit. A firm could be propped up until its creditors and counter-parties are paid. For example, while AIG is being propped up, it paid all of its debts to Goldman Sachs.