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Geithner: Treasury to seek new powers to regulate and "manage" big financial institutions

CNN reports that Geithner will ask for new powers for Treasury. MSNBC had reported Geithner said at House hearing that he wanted Treasury to have powers for receivorship, now only with FDIC, but to used only for Big Banksters and other big financial system companies. Developing.... Now, with 3 updates!

From the CNN article:

Treasury Secretary Tim Geithner will push for unprecedented new regulatory powers on Tuesday to seize financial institutions whose failure would pose serious risks to the U.S. financial system, according to two senior administration officials.


With such "resolution authority," the federal government could intervene and aggressively reorganize a troubled business -- such as insurance giant AIG -- before its problems ripple through the global financial system, the administration officials said.


The authority would allow the government to sell or transfer assets and components of a troubled company, including renegotiating or dissolving executive compensation agreements and addressing risky derivatives portfolios, the officials said. .

According to prepared remarks, the treasury secretary is expected to tell the Financial Services Committee that this extraordinary situation is forcing the government "to take extraordinary measures."

"We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient and our system more just," Geithner plans to say.

The aim is to "ensure that our country never faces this situation again," the secretary will explain.

A CNN poll has the No vote for Geithner to have these powers at 59%.

What would Geithner et al do with such powers? Clarity, firm goals would be appreciated (as VL noted, "transparency" can mean something isn't visible....)

Update: From Reuters, Rep. Kanjorsky favorable to increased Treasury powers.

U.S. Rep. Paul Kanjorski, chairman of a House Financial Services subcommittee, said Geithner would be asking for additional authority to oversee organizations like giant insurer American International Group.

Kanjorski said he would work with the Obama administration to give the Treasury Department the additional authority to handle such institutions "if there is a systemic problem involved.

"We can't have entities like AIG going totally uncontrolled and unregulated when they have such a forceful effect on the economy," Kanjorski added.

Legislation to create a process for unwinding a failing nonbank financial institution is among the measures expected to come before the House Financial Services Committee for a possible vote on March 31, according to congressional aides.

Update 2: Via BDBlue's comment below, Yves at Naked Capitalism tries to suss out what's going on. Not as much as seems to be happening. Points out Treasury wants these new powers for banks, insurance companies, and hedge funds. seems curious indeed that it is asking to extend authority that it is patently reluctant to exercise.

Moreover, elements of this appear, to put it mildly, misguided. Insurers are regulated by states. Does the Treasury, in supplanting state authority, intend to put in place the needed supervisory apparatus? Does anyone at Treasury have the foggiest grasp of insurance accounting (which separately, is a bit of a mess)?

And AIG, poster child of insufficient regulation, was overseen at the parent level (which is where the black hole creating Financial Products unit sat) by the Office of Thrift Supervision (no joke), which is an agency of the Treasury! So the Treasury is acting like it needs more authority to prevent future AIG's when its own agency was responsible for the doomsday machine part of AIG.

And the hedge fund supervision bit probably means less than meets the eye. Even if a lot of them have operations in Fairfield County or Manhattan, a lot are domiciled in the Caymans or Luxembourg. You do need to observe certain forms to make sure the designation sticks (have local counsel, have annual meeting there, etc.) but after the Bear Stearns hedge funds screwed up on that front (setting up funds there but not taking other steps consistent with having them domiciled offshore), other funds may have cleaned up their act. (My emphasis--and thanks for this find, BDB)

Update 3: Denninger appears to agree with Yves that there are plenty of legal and available tools for managing bad actors in financial area. Well, goes a bit further than Yves:

In fact what they need is prison terms for their willful refusal to exercise the power they already had, with Geithner being one of the worst offenders in that he sat as head of the NY Fed while the worst of these abuses occurred, head firmly and intentionally buried in the sand.

No votes yet


Mandos's picture
Submitted by Mandos on

It's no worse if Geithner has such powers than if he didn't.

I mean, who is calling for bank nationalization here? This seems to me to be a step towards nationalization. If the banks are nationalized, what kind of people do you think would have their hands on the levers?

Submitted by jawbone on

Seems very sudden--and given their predilection to protect Big Banksters, what does it mean? What will they do? Who regulates the regulators? Oh, dear me, I have lost faith, haven't I?

Watchmen. Who watches the watchers?

Mandos's picture
Submitted by Mandos on

Well, considering what they've been telling Ezra Klein, it *could* be that the Sekrit Strategy is first to discredit the toxic assets via a failed bailout, and then to leave nationalization as the only option.

Sometimes you just gotta play that 11-dimensional chess.

Mandos's picture
Submitted by Mandos on

"secret" in a cutesy way. I'm incredibly amused that my post is the first on Google for it. Do I own a hapax legomenon now?

Now it's your turn. Does T/U mean "thank you"? Well, you're welcome!

BDBlue's picture
Submitted by BDBlue on

Yves Smith thinks Treasury is seeking these powers not to nationalize the banks, but to give it the authority to bail them out:

Given the lack of any mention of a special resolution regime, or intent to develop one, the point of this bill is NOT, appearances to the contrary, to be able to put more firms into receivership. It is to get broader authority to bail them out.

gqmartinez's picture
Submitted by gqmartinez on

When faced with strong evidence Obama is doing something boneheaded (or evil), just assert 11 dimensional chess. Its astonishing to see that argument. Do they believe their idiocy or are they lying liars?

Mandos's picture
Submitted by Mandos on

If it's not 11-dimensional chess, we're screwed (in that the remaining options are violent revolution or social collapse). Consequently, the only basis for positive action is to assume that it is 11-dimensional chess.

gqmartinez's picture
Submitted by gqmartinez on

Why not bipass the failed bailout and go straight for the nationalization, which is part of the ultimate solution in the 11 dimensional game you are playing anyway?

There are other alternatives to try besides failed bailouts and armed revolution. We've been talking about them for months--you explicitly mentioned one, btw just moments ago. But hey, whatever you need to say to get you through the night.

Mandos's picture
Submitted by Mandos on

...there are all kinds of other alternatives. It's not like I ever disputed that. I just don't have a belief, at the outset, that they will be tried until it is absolutely necessary for them to be tried (ie too late). I don't associate that with any particular leader.

Damon's picture
Submitted by Damon on

Yeah, at least the way I interpreted this given the recent past is that this is a step to expediate future bailouts. That's the only sign they've given us. Why anyone would think this is a step towards nationalization given that they've not only expressed not having the stomach to do, but have in fact went the mulitple bailout route, is beyond me. It's wishful thinking until they prove otherwise (and they won't).

I mean, mean, these guys want to bet our money on the ponies, have already done is ad infinitum since late summer/early fall of last year, and people are still willing to give them the benefit of the doubt? Is this that whole "they are secret liberals" thing, again?

Submitted by jawbone on

taxpayer. OK, before you choke or die laughing, it's how they're positioning themselves against the adminsitration and the Dems. As the defenders of the little people. They've played this strategy before, going back to Reagan. Then they just crush the little people, but they know how to parley such lies right into power.

If they come out against regulating the Big Banksters and others in the fianance system then they run the risk of being seen for what they are. But some of them are very, very wily and canny. And given how badly the Dems handled the AIG situation and bonus babies thing, the Repubs have their opening.

So, they're going to play the populist card. Which should be Obama's to play with....