End bailouts: past, present and future

It's agreed. Taxpayers hate the bailouts. So do I, and so do most of my colleagues. In fact, many of the big Wall Street firms that received funds under the original bailout have already paid it back because they hated the political strings and bad PR that came with the money. Good for us. Now, let's stop the next one.

In so doing, we can't forget that the true costs of the financial crisis extend beyond the taxpayer bailouts. They include the jobs, savings and financial security of millions of Americans who have been left to struggle in the economic downturn that followed. That's why effective financial reform must end the bailouts and prevent the next financial meltdown.

Fortunately, there are practical alternatives to the misguided bills that Democrats have pushed through the House and are now being debated in the Senate.

A comprehensive proposal offered by House Republicans - HR 3310 - would modernize regulations to respond effectively to evolving markets, restore market discipline and shed light on reckless practices that put the economy at risk. During debate on the original House Democratic proposal, we also offered an amendment to create a new council tasked with crafting stronger consumer protection rules and coordinating their enforcement.

In addition, several proposals have been introduced to reform the failed mortgage giants that fueled the housing collapse - Fannie Mae and Freddie Mac - both of which remain conspicuously absent from Democrat proposals. Lastly, a strong alternative plan has been offered by members of the Financial Services Committee to establish new bankruptcy rules to wind down - not bail out - failed firms. Our alternatives would put an end to the Wall Street perception that taxpayers will always be there to bail out the biggest risk takers. It was that mentality that caused the markets to undervalue risk, inflated the bubble and left taxpayers to clean up the mess when it burst. It must end.

In contrast, the House and Senate bills do little to restore confidence in the financial markets. Instead, they endow Washington bureaucrats with far-reaching and punitive powers more likely to undermine financial innovation and limit consumer access to credit than promote stability. For example, a new agency would have the role of policing financial products, even those offered by small and community businesses that had nothing to do with the financial crisis. Under the Democrats' plan, past mistakes would be repeated, as that same agency would be kept separate from regulators protecting the overall safety and soundness of financial institutions, resulting in conflicting - and potential costly - regulatory blunders.

The current proposals also treat "ending the bailouts" more like a talking point than a mission statement. The House bill goes so far as to create a new permanent bailout authority with the same implied government guarantee that turned Fannie Mae and Freddie Mac into massive taxpayer liabilities, estimated to cost up to $389 billion. Like the House proposal, the Senate plan does nothing to end the "too big to fail" mentality that has let Washington determine the winners and losers in this financial crisis. The result will be a Washington that runs the market instead of regulating it.

There still is reason for hope that strong, effective reforms can be passed. The current Senate debate will involve hundreds of potential amendments.

If more members on both sides of the aisle stand together and demand tough but common sense reform, the financial sector could lead the way to economic recovery. If not, any financial rebound could be doomed from the start.

• U.S. Rep. Judy Biggert of Hinsdale is the ranking Republican on the House Financial Services Subcommittee on Oversight and Investigations. She represents Illinois' 13th District.