Las Vegas Sun

February 13, 2012

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Sun editorial:

Too big to fail?

Large financial companies that helped cause the crash should face further regulation

Thursday, Oct. 29, 2009 | 2:06 a.m.

Rep. Barney Frank, chairman of the House Financial Services Committee, released a plan Tuesday to try to rein in the huge Wall Street companies that once were labeled “too big to fail.”

Frank, D-Mass., has proposed creating a council of federal regulators to monitor companies that could pull down the economy if they fail. Under the plan, the federal government could move to save or dismantle a company if it sees signs of imminent trouble.

The proposal, which has the support of the Obama administration, also seeks to limit future federal bailouts. Companies with more than $10 billion in assets would foot the bill for the government’s effort to save or dismantle one of their peers.

Under the plan, which is expected to be discussed today in Frank’s committee, the nation’s largest companies would have to keep more money in reserve, plan for how they would dismantle themselves in a crisis, and find it more difficult to take on heavy debt.

In a letter to members of his committee, Frank said there is a belief among financial executives that the government will save the behemoth companies and that “creates a perverse incentive for large firms to take reckless risks.”

It is understandable to see how that belief was created, given the impact the companies had on the market and the extraordinary lengths the federal government has gone to keep companies such as AIG, Citigroup and Bank of America solvent.

Frank’s proposal is sure to run into trouble with conservatives and libertarians. However, they should remember that the nation’s economy is suffering because some of these large companies took too many foolish risks, a situation exacerbated by the lack of enough government oversight and regulation.

There are still many details to be fleshed out regarding Frank’s plan, but it is definitely headed in the right direction. The national economic crisis demands that Congress take action to prevent another dire situation.

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