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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 (NYSE: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.

Source: Republicans on Letting Banks Fail