This is the Cato Daily Podcast for Wednesday, April 21st, 2010.

I'm Caleb Brown.

The Financial Regulatory Reform in Washington would create additional moral hazard.

Why monitor a bank's health when the government will bail out depositors and investors

when it fails?

That according to Mark Calabria, director of Financial Regulation Studies at the Cato Institute.

The debate in a last couple of weeks is whether or not these bills actually do create permanent

bailout authority or whether they end the bailouts and make them impossible,

ending the too big to fail problem?

Well a lot of it gets to, you know, the definitional uses. I mean, everybody seems to have

redefined bailouts and too big to fail to favor their own position. So I think we should start

with an observation that on too big to fail, the really discussion is about whether you

ended or whether you manage it.

Senator Dodds bill really takes the approach of, you know, we're not going to end too big

to fail, we're just going to identify those firms that are too big to fail ahead of time and we're not going to end too big to fail. We're just going to identify those firms that are too big

to fail ahead of time and we're going to regulate them in such a way that they won't fail.

So and I think he's very explicit in that manner and A number of people, including Paul Volker,

have pointed out that the Dodd bill does not end too big to fail.

So that's part of it.

The other part of it is a bailout.

And Senator Dodd has redefined a bailout in his bill to mean it's only a bailout if the taxpayers

put money into it.

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