Financial Overhaul: Taxpayers Would Still Foot the Bill

By Jim Kuhnhenn, Associated Press Writer

WASHINGTON (AP) — A Senate measure advertised as protecting taxpayers from another Wall Street bailout would still leave them fronting the money if the government moves to liquidate a big failing company like insurance giant AIG.

Taxpayers could end up putting up billions of dollars to cover the costs of dealing with such a firm and be able to recoup that money only over a period of five years, under the Senate's sweeping overhaul of financial regulations.

An amendment the Senate is expected to pass Tuesday states that "taxpayers shall bear no losses from the exercise of any authority under this title." Sen. Richard Durbin, D-Ill., said Monday the legislation means: "We're never going to let the taxpayers and Treasury face this kind of obligation."

But the measure doesn't prevent that kind of obligation, though it does say that taxpayers would be paid back.

Financial experts argue it would be irresponsible to preclude the use of taxpayer money in the middle of a financial crisis.

"You can put your head under the cover and pull the blanket up, but you can't make systemic risk cost free," said Karen Shaw Petrou, an analyst with the consulting firm Federal Financial Analytics.

Other steps the Senate intends to take could mean taxpayers could end up fronting even more money.

The legislation aims to avoid the billions of dollars in taxpayer-backed infusions that prevented AIG, the insurance conglomerate, from becoming a disastrous financial drag in late 2008.

It would set up a mechanism to dismantle or liquidate giant, interconnected failing firms by requiring that the costs of bringing them down be borne first by shareholders and creditors and, if need be, by some of its largest peers in the industry. But most agree that such a massive undertaking would not carry additional costs.

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