WASHINGTON — The White House and congressional Republicans sparred Wednesday over how to protect taxpayers against “too big to fail” financial institutions, sharply disagreeing on whether legislation backed by President Barack Obama would leave the government on the hook for bailing out firms whose failure might threaten the economy.
Obama, meeting with House and Senate leaders of both parties, insisted on a tough bill, specifically singling out oversight of previously unregulated financial instruments. How to regulate these products, known as derivatives, has become the latest point of friction between Democrats and Republicans.
But as the Senate prepares to begin debate in less than two weeks on legislation revamping regulation of the financial industry, the question of bailouts has elevated the sharp partisan differences over how to respond to the 2008 crisis that caused a near meltdown on Wall Street.
Both sides were testing populist messages, seizing on public disdain for big financial institutions. The White House argued that opposition to the bill amounted to support for Wall Street banks; Republicans countered that the Obama-backed bill would perpetuate bailouts for Wall Street firms rather than end them.
Treasury Secretary Timothy Geith ner later said the cost of taking down large, failing financial institutions will be borne by big banks, not taxpayers.
The House and Senate bills call for funds, financed by large financial institutions, to cover the costs of liquidating firms deemed too large to go through bankruptcy proceedings.
Sen. Bob Corker, R-Tenn., a Senate Banking Committee member who has negotiated with Chairman Christopher Dodd, D-Conn., said the rhetoric over potential bailouts had become overheated.
“The fact is,” he said, “I think we could fix those in about five minutes.”
Earlier, Dodd angrily accused Republicans of “political chicanery” and appeared on the verge of abandoning talks.
