Posted on Thursday, January 27, 2011
WASHINGTON — If Representative Darrell E. Issa, Republican of California, gets his wish, he will have only two years to serve as a chief tormenter of the Obama administration. So he was understandably eager to get started on Wednesday with his first hearing as chairman of the House Committee on Oversight and Government Reform.
In jumping into the complex issue of bank bailouts, the committee provided an object lesson in the flexibility of words, showing that statements on complex matters like how to resolve a financial crisis can often be open to competing interpretations.
Mr. Issa began the hearing on “bailouts and the foreclosure crisis” by suggesting that the financial institutions that grew even larger during the crisis might be encouraged to break themselves up so that they would not find themselves, during a future crisis, in need of a bailout.
A former businessman who is known for his free-market leanings, Mr. Issa made the statement in response to an observation by Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, or TARP, in a recent report. Mr. Barofsky wrote that the government’s bailout of Citigroup in 2008 institutionalized the view among investors that large financial companies still enjoyed an implicit government guarantee that they were “too big to fail.”
Mr. Issa noted that Bank of America, already one of the country’s biggest banks, grew considerably larger during the financial crisis by first absorbing Countrywide and then Merrill Lynch.
“I’m not for breaking up companies or taking a heavy hand,” Mr. Issa said. “But if Bank of America is too big to fail, then shouldn’t we be insisting that they be — and I’m not suggesting this — but shouldn’t we be suggesting that they find a way to not be too big to fail in whatever kind of divestitures they need, rather than putting them in that category” of companies that are “effectively backstopped by the federal government?”
A spokesman for Mr. Issa said that the chairman was not saying that Bank of America should be broken up. Rather, he said, Mr. Issa wants the government to get out of the equation by not promising support for failing banks.
Likewise, a statement by Treasury Secretary Timothy F. Geithner in the Barofsky report was open to interpretation by Republicans on the committee.
In the statement, Mr. Geithner seemed to imply that future bailouts of big banks were a possibility — a statement at odds with comments by President Obama and other Democrats that the Dodd-Frank Act, the financial regulatory overhaul enacted in July, guaranteed that failing banks would be closed down, not bailed out.
In 2008, “the size of the shock that hit our financial system was larger than what caused the Great Depression,” Mr. Geithner was quoted as saying. “In the future we may have to do exceptional things again if we face a shock that large. You just don’t know what’s systemic and what’s not until you know the nature of the shock. It depends on the state of the world — how deep the recession is. We have better tools now, thanks to Dodd-Frank. But you have to know the nature of the shock.”
Republicans insisted that Mr. Geithner was holding out the possibility of further bailouts, and they repeatedly questioned Timothy G. Massad, who oversees TARP, about his boss’s statement.
“What he was referring to was the ability to use the tools under Dodd-Frank to address this and the fact that we don’t know exactly what the issue will be,” Mr. Massad said. “The rules under Dodd-Frank are flexible. We’re not going to have just a set of immutable, quantitative criteria that say if you’re above this amount of assets, you’re too big to fail.”
By EDWARD WYATT