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Reality Check: TV Ad Warns Of Another Bank Bailout

Published On: Feb 03 2010 06:26:46 AM CST
Updated On: Feb 04 2010 08:17:40 AM CST
MADISON, Wis. -

Washington is trying to reform Wall Street, and the fallout means a television ad running in Madison that's warning of another big bank bailout.

WISC-TV put the ad and its claims through a "Reality Check."

The ominous ad with no voiceover seeks to scare viewers into thinking there will be another bank bailout from Congress.

"Washington still doesn't get it," the ad says.

A fast forward to the end, reveals that the ad is paid for by the "Committee for Truth in Politics." This is a one-man show, a group started by a North Carolina Republican just before the 2008 presidential campaign, WISC-TV reported.

He sued the Federal Election Commission to keep his donors secret shortly after.

With all its drama, the ad does have a nugget of truth. It goes after a bill that has passed the House called the "Wall Street Reform and Consumer Protection Act."

The Senate just referred it to committee.

The bill aims to create new financial regulations that would prevent a second collapse, even creating a process that would dismantle failing Wall Street companies.

"Now in the fine print, a 'Financial Reform Bill,' a new $4 trillion bailout for banks if they fail again," the ad says.

It's true that there is a provision in the bill that would set out parameters for another bailout should a financial crisis arise. But the misleading part is that this modifies what's been federal law since the 1930s, WISC-TV reported.

The Federal Reserve had authority to bail out AIG and Bear Stearns last year with unlimited funds.

This bill creates a Financial Stability Council, which would decide if "a liquidity event exists that could destabilize the financial system."

If so, the council can authorize the Federal Reserve to distribute funds to stabilize the market -- up to $4 trillion.

The bill outlines rules as well.

The council can't do it unless there is a 99 percent likelihood that the money will be paid back with interest, and the council can't give it to just one financial institution -- it has to be spread broadly.

Congress is allowed to vote on a disapproval of these funds, but its resolution is nonbinding.

"$4 trillion, fat cat lobbyists, special interests, lining their pockets at our expense," the ad says.

To be clear, this bill also does create a tax on financial institutions, where the money would go into a fund that would help dismantle those that fail.

The Senate Banking Committee is yet to have a hearing on this bill.

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