Vitter Introduces Bill to Prevent State Bailouts

February 2, 2011

Says federal dollars shouldn't be used for states' debt

(Washington, D.C.) – U.S. Sen. David Vitter this week introduced the State Bailout Prevention Act, which would prohibit the use of federal funds to bail out state budgets. The intent of the bill has been supported by Ben Bernanke, Chairman of the Federal Reserve.

“The Federal Reserve has already put taxpayers at serious risk in recent years by unilaterally propping up failing banks and other financial entities, and by no means should the federal government be in the business of bailing out state and local governments that are in the red,” said Vitter.

The State Bailout Prevention Act prevents the Federal Reserve from providing assistance to, or creating a facility to help, any municipality, county or state. The bill also prevents Congress and the Treasury Department from bailing out states through legislation. U.S. Sens. Jim DeMint (R-SC) and Mike Crapo (R-ID) are original cosponsors.

Earlier this month, Chairman Bernanke ruled out a bailout of state and local governments that are strapped with large municipal debt burdens. Bernanke testified that although the Federal Reserve has legal authority to help, there was little will to use that authority, saying, “We have no expectation or intention to get involved in state and local finance. [The states] should not expect loans from the Fed.” (“Bernanke Rejects Bailouts,” Wall Street Journal, 1/8/11)

“It’s encouraging that the chairman believes that the Fed shouldn’t get involved in bailing out states, but my legislation solidifies that into law,” Vitter said.

Vitter is a member of the U.S. Senate Committee on Banking, Housing and Urban Affairs. Vitter will continue to use his position on the banking committee to be a leading voice opposing bailouts, pressing for reform of Fannie Mae and Freddie Mac and preventing a repeat of the many mistakes that led to the financial crisis.

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