Showing a rare degree of unanimity, Democrats and progressive allies alike railed against Tim Geithner’s plan to deal with “too big to fail” banks and financial firms, calling it insufficient and, to some, “TARP on steroids.” It’s unusual to see such a diversity of opinion on the same side against the proposal.

The bill would create a fund, paid for by big banks and financial firms with assets above $10 billion, that would be used in the event that the firms fail and money must be used to prop them up. It would also set the Federal Reserve as the “systemic risk” regulator, overseeing those top firms.

But very few Democrats had anything positive to say about the proposal. In particular, Rep. Brad Sherman assailed it.

Rep. Brad Sherman (D-Calif.), a former accountant and member of the House Financial Services Committee, says the proposed new bailout authority would create a kind-of mutant extension of the Wall Street bailout — the differences being, he maintains, that the $700 billion Troubled Asset Relief Program at least had a cap on spending, an expiration date, congressional approval, independent oversight and some executive pay limits for the banks on the receiving end of the taxpayers’ largesse. The California Democrat is calling the bailout authority requested by the White House, which lacks most of those safeguards, “TARP on steroids.”

“The key thing is that the executive branch have the power to commit, not just $700 billion, but $1 trillion or more without having to have Congress be involved at the time of the crisis,” Sherman charged last month during a hearing on finance reform.

The “too big to fail” fund, Sherman says, increases the moral hazard that allows large banks to place big bets and gives those institutions a competitive advantage over the smaller banks without the same safeguards.

At yesterday’s hearing, Sheila Bair of the FDIC questioned the authority of the oversight council in the proposal and the responsibility placed in the hands of the Federal Reserve. She also cited the way in which the fund would be assessed:

Ms. Bair criticized the White House plan of levying an assessment on large companies after one of them had failed. Instead, she said, it made more sense to finance the fund before an institution collapsed.

A prefunded Financial Company Resolution Fund has significant advantages over an ex-post-funded system,” Ms. Bair said. “It allows all large firms to pay risk-based assessments into the Financial Company Resolution Fund, not just the survivors after any resolution, and it avoids the pro-cyclical nature of requiring repayment after a systemic crisis.”

AFL-CIO President Richard Trumka went much further.

The discussion draft appears to take the most problematic and unpopular aspects of the TARP and makes them the model for permanent legislation [...] The discussion draft would appear to give power to the Federal Reserve to preempt a wide range of rules regulating the capital markets – power which could be used to gut investor and consumer protections.

The Federal Reserve currently is the regulator for bank holding companies. In that capacity, it was responsible throughout the period of the bubble for regulating the parent companies of the nation’s largest banks. While regulatory authority rests in the Board of Governors of the Federal Reserve in Washington, routine responsibility for regulatory oversight has been delegated by the Board of Governors to the regional Federal Reserve Banks. The Federal Reserve System’s regulatory expertise resides in these regional banks. The problem is that these regional Federal Reserve Banks are actually controlled by their member banks – the very banks whose holding companies the Fed regulates. The member banks control the selection of the majority of the regional bank boards, and the boards pick the regional bank president, who are effectively the CEO’s of the regulatory staff… Giving the Federal Reserve with its current governance control over which financial institutions are bailed out in a crisis is effectively giving the banks the ability to raid the Treasury for their own benefit.

Trumka detailed this scheme by the Fed and its regional banks in our discussion on Wednesday. The lack of transparency by the Fed troubled him as well, and led him to believe that vesting them with so much authority to bail out the banks again would be a grave mistake. Of particular concern is that piece which gives the Federal Reserve the power to overrule the positions of the Consumer Financial Protection Agency.

Seeing Sheila Bair, Richard Trumka, econ bloggers, David Sirota, ad hoc groups like Break Up The Big Banks and a host of House members all unite in opposition to this proposal is pretty striking. The Administration may have thought they good get this through a mostly compliant committee, but the public outcry may have thwarted that possibility.