Conservative message-maker Frank Luntz's latest memo, which lays out a rhetorical strategy for Republicans to defeat financial regulatory reform legislation, includes a dishonest talking point that's been around since before the bill came out of the House Financial Services Committee. It's the myth that the bill creates a "permanent bailout fund" to prop up failed banks.
It's the financial reform version of the "death panel" lie that Republicans used so effectively to drive the public against health insurance reform.
During floor debate in December, Rep. Jerry Moran (R-Kan.) railed against a "a permanent, TARP-like bailout authority." Rep. Ed Royce (R-Calif.) said, "For the first time in history, Congress is authorizing perpetual bailout authority." Said Rep. Shelley Moore Capito (R-W.Va.), "Rather than ending the bailouts, this legislation institutionalizes them." And so on.
But it's just not true. The bill does set up a large fund, but the money is to be used to take big banks apart if necessary, not keep them propped up.
The bill gives the Federal Deposit Insurance Corporation new authority to dismantle failed financial institutions that pose a systemic risk to the rest of the system, a process that would be paid for with a $150 billion "dissolution fund." The money would come from fees paid by those companies that are so large that their uncontrolled failure could tank the economy. The bill requires any taxpayer money to be paid back to the Treasury before creditors see a dime. It requires unsecured creditors to take a loss, and the FDIC is required to ensure board members and management "responsible for the failed condition of the covered financial company [are] removed."
The bill does allow the dissolution fund to borrow up to $150 billion from the Treasury, and more if it can get congressional approval. So taxpayer money could be used -- but to wind down a failed institution, not bail it out. If heads roll and creditors lose their money, that's hardly a bailout.
Republicans wanted a new chapter of the bankruptcy code instead.
Luntz, in his memo to help Republicans win elections, wrote that "a vote in favor of creating a permanent bailout fund of private companies is like committing political hari-kari. Frankly, the single best way to kill any legislation is to link it to the Big Bank Bailout." Luntz encourages Republicans to hammer away at that term.
Rep. Luis Gutierrez (D-Ill.) reacted to the "bailout fund" claim during debate on the House floor. He quipped that he isn't the best English speaker, but he'd compensated for his language skills.
"I've had the bill thoroughly examined by those who do speak the English language and have only spoken the English language all their life, and they cannot find the bailout fund in the bill," he said.
HuffPost asked Luntz where to find that language in the bill. "It is in the fine print of the legislation in stuff that was added to the House effort that the Senate has been talking about whether it will keep or not keep it," he said.
HuffPost readers: Can you find the bailout fund? Click here for a PDF of the bill.
Steve Adamske, a spokesman for Rep. Barney Frank (D-Mass.), chairman of the banking committee, said the Luntz memo proves that the Republican strategy "is to lie through their teeth."
"In the House legislation, we set up a fund that is paid for by the industry that only is spent to stop the collateral damage to the financial system from a failing firm," Adamske wrote in an email to HuffPost. "But a systemically failing firm is given a death sentence by the House bill: shareholders are wiped out, management is fired, and creditors take a hit, and every employee that is not needed to wind down the company will get to spend much more time with their families."
Frank had another term for the dissolution authority in the fall. "We will be providing a mechanism for putting non-bank financial institutions out of everybody's misery," said Frank. "There will be death panels enacted by this Congress, but they will be for non-bank financial institutions that will not be considered too big to die."
With reporting by Sam Stein.
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