The Obama administration should never have turned to these guys for economic advice, and their record since January has only proven this. The president should listen to Peter DeFazio and replace them.
There are plenty of options, of course, including progressive economists like James K. Galbraith, Robert Reich, Paul Krugman, Joseph Stiglitz, Dean Baker, who could refocus not only the Obama administration away from Wall Street but help create a new path for the economy as a whole.
OK. The headline’s meant ironically, of course, but if the Treasury secretary fills in the details of today’s financial industry regulation plan with some real teeth, we might just want to start calling him that.
Here is what The New York Times is reporting today based on Geithner’s testimony before the House Financial Services Committee:
Mr. Geithner, in his opening statement, called for “comprehensive reform. Not modest repairs at the margin, but new rules of the game.”
Under the administration proposal, hedge fund, private equity and venture capital fund advisers would for the first time have to register with the Securities and Exchange Commission. They would be required to provide the government — on a confidential basis — information on how much they borrow to leverage their investments as well as information about their investors and trading partners. The S.E.C. would then share those reports with a new “systemic risk regulator.”
On first blush, it seems shockingly strict given how Geithner has been dithering on this up until now (not to mention that his dangerous public-private bailout plan could cost us far more than we should have to pay for this mess).
Geithner has, until now, been far too worried about what the bankers and pseudo bankers had to say, too concerned that the people who gambled like drunken cowboys would get angry with us.
More from the Times:
The plan outlined in broad strokes by Mr. Geithner would require Congressional approval. It would give the government new powers over “systemically important” banks and other financial institutions that are so big that their collapse would jeopardize the economy as a whole.
The plan also calls for the government to
The government would have the power to peer into the inner workings of companies that currently escape most federal supervision — insurance companies like A.I.G., multibillion-dollar hedge funds like the Citadel Group and private equity firms like the Carlyle Group or Kohlberg, Kravis & Roberts.
If regulators decided that a company had become “too big to fail,” as was the case with A.I.G. in September, they would subject it to much stricter capital requirements than smaller rivals and much closer scrutiny of its borrowing levels and its trading partners, or counterparties.
Geithner apparently envisions something like the Federal Deposit Insurance Corporation, “created during the Depression after a wave of bank failures, insures customers’ deposits and can take over failing banks.”
(T)he most striking new proposals, and the ones that may provoke the most heated opposition from the industry, would regulate so-called private pools of capital — hedge funds, private equity funds and venture capital funds — and the gigantic market in financial derivatives, including instruments like credit-default swaps, the insurancelike instruments that allow investors to hedge against bond defaults.
Privately traded derivatives — “like the credit-default swaps that were used both to hedge against and to speculate on high-risk mortgage-backed securities” — also would come under scrutiny, the paper said:
The administration would require that all standardized derivatives be traded through a regulated clearinghouse. Traders would be required to provide documentation on their collateral and borrowings. They would also be subject to new eligibility requirements, and their trading and settlement practices would be subject to new standards.
As I said, we have to wait for the details, but this looks a lot better than I had been expecting.
William Greider’s piece in The Nation needs to be read. That’s all I’m going to say about it.
Question: Were Congress to hand the Treasury Department and Federal Reserve “broad new government authority to regulate or even take control of financial institutions other than banks,” who would be the beneficiary?
The answer might lie in this description of the plan on The New York Times web site:
The government has such authority for banks; the Federal Deposit Insurance Corporation has power to step in to clean up a bank’s books and alter business practices like executive compensation. There is no such federal authority for non-bank entities, like A.I.G., that in recent years have become bigger players in the financial system. Sheila C. Bair, the chairwoman of the F.D.I.C., has said she believed such authority was necessary.
The administration — because of its ties to Wall Street via its financial team — has been too cautious in dealing with the financial sector, playing to accepted cliches that no longer apply (not that they ever did). Those ties raise questions, as David Sirota points out, about whether the administration would have used the authority it is now seeking.
However, if the populist pressure out there is making them demand this authority, then that’s a good thing. Once they have this authority, they will have a harder time pretending they can’t do anything to stop the kleptocracy.
Hank Kalet 