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The cost of the next financial crisis

July 1, 2010 | 12:01 am

After spending a year working on a complex and hotly disputed bill to overhaul financial regulations, House and Senate lawmakers ran into one last controversy: how to pay for it. The Congressional Budget Office estimated that HR 4173 would cost almost $20 billion over 10 years to carry out the new rules -- part of the price tag being the cost of dismantling big, failing banks. 

House and Senate lawmakers initially agreed to levy a new tax on big banks, hedge funds and private equity firms, with the rate based on the riskiness of their holdings (the greater the risk, the higher the tax). But led by Sen. Scott Brown (R-Mass.), the handful of Senate Republicans who had supported the bill -- and whose votes were needed to overcome a GOP filibuster -- objected.

Negotiators then came up with a bit of accounting gimmickry. They found they could cut the government's expenses by billions of dollars by ending the Troubled Asset Relief Program immediately, several months ahead of schedule. They also proposed to increase the premiums that big banks pay for deposit insurance. Because the federal deposit insurance fund needed to be shored up anyway, the move killed two birds with one stone.

Clever, right? There's just one problem, as the Times' editorial board points out today: the change shifted the burden of the fees from risky activities by Wall Street players onto the safe checking and savings accounts held by consumers. In other words, it spreads the cost of guarding against the next meltdown onto the people who weren't responsible for the last one.

Still, everyone should benefit from having a more effective financial regulatory system, just as everyone suffered from the failures of the current one. And more thorough oversight doesn't come cheap. Nor does it help to craft a bill that can't get the 60 votes needed to get through the Senate. (The House passed the conference report on HR 4173 Wednesday; the Senate is expected to take it up in a couple of weeks.) So what should Congress do? Take our unscientific poll, leave a comment, or both!

-- Jon Healey

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