Republicans on Letting Banks Fail

High-profile Republican Senators John McCain and Richard Shelby said on Sunday that the government should allow a number of the biggest American banks to fail rather, than commit more federal funds to prop them up.

Sen. Richard Shelby, R-Ala., ranking member on the Banking Committee, said the U.S. should not mimic Japan, which in the 1990s propped up failing banks and prolonged its economic downturn.

“Close them down, get them out of business. If they’re dead, they ought to be buried,” Shelby told ABC’s “This Week” program. “We bury the small banks. We’ve got to bury some big ones and send a strong message to the market.”

During the interview Sen. Shelby did not say which banks to shutter. But when pressed by George Stephanopoulos he referred to Citigroup (C) as a “problem child that might be on that list.”

Sen. John McCain, R-Ariz., appearing on “Fox News Sunday,” echoed his colleague’s sentiment and criticized the new administration’s response to the banks. [Reuters]

“I don’t think they made the hard decision and that is to let these banks fail,” McCain told “Fox News.”

McCain also expressed dissatisfaction with the Treasury Dept., accusing it of avoiding the “hard decision to let these banks fail.” Asked what should be done about banks, McCain said: “You’d sell off their assets and.. unfortunately, the shareholders and others will take a beating.”

Tom Donohue, president of the U.S. Chamber of Commerce, the nation’s biggest business group, reacted to the both comments made by the senators saying it was “not practical to talk about closing a bank that is integrated throughout the whole global economy.” Donohue thinks it is instead practical to talk about “buying some of those assets away from those banks and holding them in an institution that would have both public and private money.” [ABC]

While the notion of helping everybody with a sob story is definitely refutable as an argument, what’s presently important is to keep in mind that extreme decisions under current financial circumstances should be avoided. And more importantly - taking a middle-ground approach on critical issues is essential.

Comments

[market ace:]

Did I just hear two Republicans say I'm now voting against big bank bailouts after I voted for them? Did they forget they voted for $600 billion to bail these banks out and then would not even vote for that until $150 bbl in pork was added - when pork now seems to offend them. Politicians are such hypocrites it is sickening.

Of course they are right that these big banks should have been allowed to fail from day one, but they do not seem able to see reality until Paulson has paid off all of friends and the tax payers were screwed again.

Mar 09 05:47 PM

[samwise:]

Shelby voted no. Beside, madness is getting new information and STILL making the same mistake.

Mar 09 08:42 PM

[bob zimway:]

Obama cannot let go of Citibank. Republicans are hoping that he'll fail, of course, and would disavow any part of the collapse of that whole credit network.

But the Fed is propping it up daily and volumes are coming down to where it is cheaper to do so. If a bottom of at least a portion of the market can be indicated by an approaching flattening of downward trading volume, look to C.

Investors have a clear message blinking at them every day, and C pps is going up every day, 1.01, 1.02, 1.03, and I'm surprised that the finance bloggers haven't picked up on it.

Mar 09 08:53 PM

[PROXIMO:]

Like anything John McCain says is relevant.

Mar 10 12:06 AM

[PainfullyAware:]

"Do Not Let Them Fail - Continue To Sell The Future Based Upon The Charade That They Are Still Solvent." - What A Bunch OF Crap. The argument that we must continue to give them money because the aftermath of failure would be worse is fallacy. The damage is already done.

If you think it is a "Bad Market" now, wait until the "Limitless Supply Of Tax Payer Money" is found to be not enough.

Anger will be hard to quell when bellies are empty.

Mar 10 02:48 PM