Reuters: Money: BreakingViews: Bank bailout views skewer GOP star's credibility

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BreakingViews: Bank bailout views skewer GOP star's credibility Mar 23rd 2012, 19:49 House Budget Chairman Paul Ryan (R-Wis.) speaks during a news conference as he unveils ''The FY2013 Budget - The Path to Prosperity.'' with members of the House Budget Committee at Capitol Hill in Washington March 20, 2012. Credit: Reuters/Jose Luis Magana By Daniel Indiviglio WASHINGTON, March 23 | Fri Mar 23, 2012 3:49pm EDT WASHINGTON, March 23 (Reuters Breakingviews) - Paul Ryan, a rising star of the Republican Party, called this week for bold steps to put the United States on a fiscally sustainable path. But the Wisconsin congressman makes a glaring error evaluating an important financial reform. He says that the Dodd-Frank Act's new bailout-busting resolution authority will cost taxpayers and lead to more rescues. The misstep casts doubt on Ryan's ability to favor practical solutions over politics. In his sweeping proposal to reduce entitlement spending, save $5 trillion and balance Uncle Sam's checkbook, Ryan took aim at the Federal Deposit Insurance Corp's new powers to avoid another Lehman Brothers-like fiasco by liquidating large, systemically critical financial companies in an orderly way. He concludes the mechanism will encourage future bailouts, and points to a Congressional Budget Office report that it will cost taxpayers $33 billion through 2020. This is wrong. For starters, the resolution authority is designed to do precisely the opposite of what Ryan thinks. It exists to wind firms down, with creditors taking the lumps, not to bail them out. Worse, the CBO number he references is the gross cost of resolving a giant institution. The legislation dictates - and the CBO agrees - that the net price-tag to taxpayers would be zero, as the financial industry would ultimately bear any costs incurred. Though the numbers aren't huge in the context of America's balance sheet, Ryan's mistake is troubling. There are, after all, plenty of other ways to criticize the resolution authority that don't require twisting the truth. For instance, the FDIC's ability to manage a crisis if several titans are simultaneously on the brink is questionable. And lawmakers might lack the willpower to let big institutions fail anyway. The Republican's blunder raises questions about the contents of the rest of his plan, which includes some sensible ideas on which Republicans and Democrats should agree, like simplifying tax codes. Even many of his details sound right: he wants fair value accounting for federal loan guarantee costs and to privatize Fannie Mae and Freddie Mac. Either intentionally ignoring the truth, or failing to understand the law, casts a shadow over his entire plan, not to mention his bona fides. Voters deserve better from a political leader who might just be chosen as the next candidate for vice president. CONTEXT NEWS - Representative Paul Ryan unveiled on March 20 his GOP budget vision, which seeks to cut government spending by $5 trillion over the next decade. It would also scrap the current tax code and simplify both personal and corporate tax rules. Ryan's proposal addresses several parts of the economy, from healthcare to energy to financial services. - In the plan, he criticizes the Dodd-Frank Act's non-bank resolution authority, which seeks to wind down large, systemically relevant firms. He asserts that this mechanism will lead to even more bailouts and points to a CBO report that says its cost could be $33 billion through 2020. - Ryan's Path to Prosperity (full report): link.reuters.com/veg37s - CBO's Cost Estimate for the Dodd-Frank Act: link.reuters.com/weg37s RELATED COLUMNS - For previous columns by the author, Reuters customers can click on (The author is a Reuters Breakingviews columnist. The opinions expressed are his own.) (Editing by Rob Cox and Martin Langfield) Link this Share this Digg this Email Reprints

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