Today, the House Financial Services Committee began discussing how to create a resolution authority for dismantling large, complex financial institutions. Emerging as the most contentious aspect of the legislation — which was unveiled by Rep. Barney Frank (D-MA) this week — is how the money for dismantling these firms should be raised.

Frank and the administration have designed a plan under which the government loans money to a failing company to help it unwind, and then recovers that money by hitting up shareholders and then assessing a fee on other large banks. But some in Congress feel that the largest financial institutions should have to pre-pay into an insurance fund, which will then be accessed when a firm goes into a tailspin.

The administration prefers the post-failure assessment because it believes that the mere existence of a fund would create moral hazard, as large firms would take the knowledge of the fund as permission to excessively gamble. During the hearing, Rep. Luis Gutierrez (D-IL) let Treasury Secretary Tim Geithner know that he disagrees:

Let’s create the fund, just like the FDIC, so when we need to resolve [a financial institution], it stands. Your argument is, ‘oh, but Luis, moral hazard’…I don’t see banks racing to the precipice of destruction and bankruptcy because the FDIC exists. Nor do I go to an insurance company and take out a life insurance policy on myself, and the next day decide, wow, maybe I’ll just start smoking. Maybe I’ll start drinking, maybe I’ll start driving my car in a crazy manner. Maybe I really don’t care whether I live or die. I’ve got life insurance, what the hell if I die, everything is taken care of. No, that’s not the way it works.

Watch it:

I agree with Gutierrez that a fund should be built up, over time, to be used in the event that a large financial institution hits the skids. And FDIC Chairman Sheila Bair, who knows a thing or two about insurance funds, agrees as well, telling the committee that “Congress should establish a Financial Company Resolution Fund (FCRF) that is pre-funded by levies on larger financial firms — those with assets of at least $10 billion…We believe that a pre-funded FCRF has significant advantages over an ex post funded system.”

There are two reasons for this. The first is that, as Simon Johnson pointed out, “you should be paying in the good times –- not right after the crisis.” If one investment bank goes under, chances are that some others are in bad shape as well. Asking them to cough up money to facilitate their competitor’s failure could be dangerously pro-cyclical.

The second reason is political. Though it isn’t, the administration’s plan looks needlessly like the much reviled Troubled Asset Relief Program (TARP), because of the upfront loan by the government. And though the plan calls for all of the money to be recovered in 60 months, as Mike Lillis pointed out, “the provision also allows the government to extend that 60-month recovery window indefinitely.” “It could be 60 years,” said Rep. Brad Sherman (D-CA). Having a pre-paid fund would prevent any outlays on the part of the government.

As far the moral hazard argument, I think it is rendered moot so long as the legislation makes it clear that under no circumstances will a failing financial firm be saved. As Frank put it, the resolution authority has to be a “death panel” for banks. If use of the resolution authority always results in a firm ceasing to exist, that should eliminate any notion that the government will facilitate a bailout.

Today, the Select Committee on Energy Independence and Global Warming held a hearing investigating fraudulent letters forged by Bonner & Associates on behalf of the American Coalition for Clean Coal Electricity (ACCCE) to attack the Waxman-Markey American Clean Energy and Security Act (H.R. 2454). As the Wonk Room’s Brad Johnson has reported, ACCCE President and CEO Steve Miller lied under oath when he told the committee that his organization has never opposed clean energy legislation.

Later during the hearing, Rep. Jay Inslee (D-WA) asked Miller about the purpose of ACCCE. Miller replied that in addition to grassroots lobbying (astroturfing) and state-based lobbying, his front group has only began federal lobbying in “April of 2008″ in its “16 year history”:

INSLEE: Your entire goal of your organization is to influence Congress. Is that right?

MILLER: We do work at the state level, we do regulatory matters, we do general education to the public. So, the federal, direct federal lobbying has only been part of our portfolio since April of 2008 with a 16 year history of the organization.

Watch it:

Miller’s claim is another example of the coal industry’s perjury under oath. In a six month period of 2007 alone, ACCCE, under its previous name of Americans for Balanced Energy Choices, spent $2,660,000 lobbying the federal government. Senate disclosures show that the organization has spent millions more lobbying since 2001.

ACCCE was formed in 2008, according to its website, with the combined “assets and missions of the Center for Energy and Economic Development (CEED) and Americans for Balanced Energy Choices (ABEC).” So when Miller noted his 16 year history, he was referring to the lobbying efforts of the coal industry’s previous incarnations, ABEC and CEED.