'This Week' Transcript: Former President Bill Clinton

WILL: A moral hazard exists when the incentives are for perverse behavior. And the question is, does the attempt to deal with too big to fail, which some people think if it's an institution's too big to fail, it's too big to exist -- that's another argument. The fact is, there are huge financial institutions that are too big to fail, have been since the Reagan administration in 1984 bailed out the Continental Illinois bank.

So the question under the legislation being considered is, the resolution authority, which is a fancy way of saying how do you liquidate these things or...

TAPPER: Can the government come in...

WILL: That's right.

TAPPER: ... and sell it off?

WILL: Unless the creditors and shareholders are exposed to severe, terrifying, deterrent losses, then you have moral hazard, because they will not be careful with the risks they take. And the question that some Republicans have is, is there a safety net that will encourage risk-taking?

And to prevent risk-taking and to go into the resolution authority, is there so much money with so much discretion on the part of bureaucrats that there's no recognizable rule of law here, and you come back to a slush fund for crony capitalism?

TAPPER: And, in fact, a Republican pollster and message guru, Frank Luntz, wrote a memo in January in which he advised Republicans on how to tackle financial regulatory reform by saying, quote, "Public outrage about the bailout of the banks is Wall Street is a simmering time bomb set to go off on election day. To put it mildly, the public dislikes taxpayer bailouts of private companies. Actually, they hate it. Frankly, the single best way to kill any legislation is to link it to the big bank bailout."

And here's a montage of Republican Senate Leader Mitch McConnell.

(BEGIN VIDEO CLIP)

MCCONNELL: Endless taxpayer-funded bailouts...

Bailout...

Bailout...

Bailout...

Bailout...

... endless taxpayer bailouts...

Bailouts...

Bailout Wall Street...

Bailout...

Bailout...

Endless bailouts...

Bailouts...

Backdoor bailouts...

Bailouts...

Bailouts...

Potential future bailouts...

(END VIDEO CLIP)

TAPPER: I'm not exactly sure what he's trying to say there.

STRASSEL: Repetition. TAPPER: Does he have a point? I mean, regardless of the Luntz memo, does this bill create endless taxpayer bailouts?

STRASSEL: I mean, regardless of whether or not this might be good politics for Republicans is the question of whether or not that's the case. And there are provisions in this. There's this resolution fund, $50 billion resolution fund. The Fed's got emergency lending authority that's becoming more murky than what it already is. There's also -- the FDIC has a provision in here that says that the agency can guarantee corporate debt, any corporate debt, not just for financial institutions.

The problem here is that the Democrats have come to this bill with a mindset that, yes, we have all this stuff in here, but don't worry, because we're just going to put so many regulations on people and be so vigilant that we won't ever have to use this authority.

The problem with that is that the definition of a credit bubble and a credit crisis is something that you don't realize is happening until it's done and dusted.

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