Shelby disappointed in Paulson’s response on bailouts

Sen. Richard Shelby (R-Ala.) said Tuesday he received an unsatisfactory answer from Treasury Secretary Henry Paulson regarding possible federal bailouts of struggling Wall Street institutions.

Shelby, who is the ranking Republican on the Senate Banking Committee, wanted Paulson to explain where the administration “draws the line” when determining whether to rescue a financial group. Federal officials are trying to engineer a private rescue of American International Group (AIG), the nation’s largest insurance company, but not Lehman Brothers, which filed for bankruptcy this week.

{mosads}"He didn't give me a satisfactory answer," Shelby said, but declined to elaborate on Paulson’s response.

"I don't think we can bail out everything," Shelby said. "I come from the view that nothing is too big to fail, and that includes Bear Stearns, that includes Lehman Brothers and AIG."

Shelby said he was not concerned by the effort to engineer a private rescue of AIG.

Shelby also said there could be a need for future regulations and a tightening of the 1999 law, known as Gramm-Leach-Bliley, that paved the way for consolidation between commercial and investment banks. He also was open to creating a federal entity to manage the assets of failed institutions, similar to the Resolution Trust Corp. in the 1990s.

He called for the next Congress to conduct a comprehensive review of financial regulations before taking new actions.

"There is nothing wrong with examining to see if we can improve it," Shelby said. "Where have things fallen through the cracks?"