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!
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.
...it 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.