Financial reform threat now serves as a White House hammer; soon, it might make U.S. a nation ruled not by law, but by men

Is America moving away from being a nation ruled by law to one ruled by men? That's the question senators should consider this week as they move to vote on Sen. Chris Dodd's financial reform legislation. How the legislation is finalized could have long-term adverse consequences on America's bankruptcy process.

Little thought has been given to that question in the rush to financial reform. But Senate and House legislation would discard 200 years of bankruptcy case law, replacing it with a special, one-of-a-kind resolution authority, managed by the Federal Deposit Insurance Corp.

The agency will soon have absolute authority over failing big banks, empowered to borrow up to 90% of the assets of the companies it seizes and provide unlimited guarantees to "solvent" institutions.

While providing the big banks with a permanent, codified source of bailout funds, the expanded powers of the FDIC will include its mediating with creditors. It will make decisions that bankruptcy judges, legal counsel and courts historically have made. An organization that was founded to provide insurance for depositors will now provide insurance for companies that are too big to fail.