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D.C. Legislation Introduced to Stop Feds From Bailing Out States

February 9, 2011

Senator David Vitter (R-LA) introduced legislation yesterday to prevent the Federal Reserve from secretly bailing out states with budget problems.  Senators Jim DeMint (R-SC) and Mike Crapo (R-ID) have joined the effort and signed onto S.251, the State Bailout Prevention Act.  This legislation music to the taxpayer’s ears.

The Vitter bill will stop states on the verge of bankruptcy, like California or Illinois, to secretly borrow hundreds of billions from the Federal Reserve to push to the future tough budgetary cuts. 

House Majority Leader Eric Cantor (R-Va.) said state and local governments already have all the tools they need to shore up their budgets.

The legislation uses three methods of preventing bailouts.  Section (a) of the Vitter legislation prevents federal funds from being used to bail out any state that is at risk of default.  This is an effort to prevent the whole federal government from bailing out a State, municipality, locality, county.

Notwithstanding any other provision of law, no Federal funds may be used to purchase or guarantee obligations of, issue lines of credit to, or provide direct of indirect grants-and-aid to, any State government, municipal government, local government, or county government which, or or after January 26, 2011, has defaulted on its obligations, is at risk of defaulting, or is likely to default, absent such assistance from the United States Government.

The next section is more specific to prevent Treasury Secretary Tim Geithner from using Treasury authority to bail out states or localities.  Section (b) of the bill prohibits the Department of Treasury from directly or indirectly bailing out those at risk of default.

The Secretary of the Treasury shall not, directly or indirectly, use general fund revenues or funds borrowed pursuant to title 31, United States Code, to purchase or guarantee any asset or obligation of any State government, municipal government, local government, or county government, or otherwise assist such government entity, if, on or after January 26, 2011, that State government, municipal government, local government, or county government has defaulted on its obligations, is at risk of defaulting, or is likely to default, absent such assistance from the United States Government.

The last section targets the Fed and makes good on Chairman of the Fed Ben Bernanke’s promise.  Section (c) of the legislation prohibits the Federal Reserve from repeating the mistakes of the past.

Notwithstanding any other provision of law, the Board of Governors of the Federal Reserve System shall not provide or extend to, or authorize with respect to, any State government, municipal government, local government, or county government, or other entity that has taxing authority or bonding authority, any funds, loan guarantees, credits, or any other financial instrument or other authority, including the purchasing of the bonds of such State, municipality, locality, county, or other bonding authority, or to otherwise assist such government entity under any authority of the Board of Governors.

What is Congress waiting on.  Get this thing passed and States need to get pension benefits out of their Constitution.  When has a public pension rose to the level of a Constitutional guarantee?  Is it better to lose an election, or lose a country?

Read More: http://biggovernment.com/bdarling/2011/02/02/feds-blue-state-bailout-authority-terminated/

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