Geithner’s 6 Point Plan
Below I’ve highlighted the six points of Geithner’s plan. (Read LA Times article here.)
The key elements of the Obama administration’s proposals are:
• Give a single government entity, possibly the Federal Reserve, the power and authority to oversee the entire economy for signs of “systemic risk.”
• Establish a government mechanism to seize and dismantle large institutions whose failure threatens the nation’s financial stability.
• Enact tougher requirements for the amount of money and assets financial institutions need to have on hand so they can withstand economic troubles.
• Require large private investment funds to register with the Securities and Exchange Commission.
• Set up a new, comprehensive framework of regulation of the complex financial instruments known as derivatives, including a central clearinghouse for trades in that market.
• Develop new, stronger requirements for money market funds so increased withdrawals won’t threaten the broader financial system.
“What we need is better, smarter, tougher regulation,” Geithner said.
So… do you think these points are better, smarter, and tougher?
Tags: Geithner, The Economy
Well, it used to be that the government was charged with overseeing banks, and could lend to them or seize them when the messed up. That is fine.
The problem is, deregulation has allowed so many other kinds of companies to be banks, and allowed banks to do other stuff.
So rather then let the government oversee everything, why not just go back to the old way when banks were banks, and regulating them wasn’t that hard?
Kick manufacturers and retailers out of the banking business… Kick banking out of insurance, and insurance out of banking…. instead of trying to bail out every hybrid bank/insurance/auto company.
I’m with you anon, but I do think we need more tools for institutions that have a big impact on our economy. If we just use the word “bank” that doesn’t really give us that much room in the future.
I think these regulations are a good start, but I would also like to see something to prevent “too big to fail” in the first place.
Establish a government mechanism to seize and dismantle large institutions whose failure threatens the nation’s financial stability.
Isn’t this why you need government approval of a merger or acquisition? I think it’s the DOJ who already does this..
I seem to remember there being a mad rush to buy up small regional banks 10-20 years ago.
Quoting Sen. Bernie Sanders, “Too big to fail is too big to exist”.
Greed is NOT good, time to quit putting all our eggs into the casino economy of Wall St. basket.
Time to invest in INFRASTRUCTURE. Time to start manufacturing again in America and buy our own stuff to employ our own people.
Too many insider-y insiders of Wall Street keeping the status quo.
There’s the Money Party at it, again.
This is basically the economic version of the Patriot Act.
• Give a single government entity, possibly the Federal Reserve, the power and authority to oversee the entire economy for signs of “systemic risk.”
The Fed already has this power. They monitor sectors and individual institutions all the time.
• Establish a government mechanism to seize and dismantle large institutions whose failure threatens the nation’s financial stability.
Don’t like it much, rather fix the conditions that lets them get so big. Repeal Gramm-Leach-Bliley, re-implement media ownership restrictions, etc. Same idea though – don’t let ’em get so big you have to seize them.
• Enact tougher requirements for the amount of money and assets financial institutions need to have on hand so they can withstand economic troubles.
Agreed.
• Require large private investment funds to register with the Securities and Exchange Commission.
Agreed.
• Set up a new, comprehensive framework of regulation of the complex financial instruments known as derivatives, including a central clearinghouse for trades in that market.
Agreed (check details for devil though).
• Develop new, stronger requirements for money market funds so increased withdrawals won’t threaten the broader financial system.
Agreed. Wait a minute – what requirements? Stronger how?
Brian – It seems to me that the approvals process for M & A is more of an anti-trust issue, not a too big to fail issue. Maybe I’m wrong.
Also, there is currently nothing keeping a company (say a bank) from starting another wing of their business (think an insurance division). There is no approval needed for that (at least nothing meaningful). and if that division starts insuring banks and doing credit default swaps and other forms of gambling… well you get the point.
The Fed already has this power. They monitor sectors and individual institutions all the time.
I don’t think the Fed can monitor investment houses or insurance companies. Just banks.
I don’t care about that, I care about them being too big to fail. Let them screw up all to oblivion, as long as they don’t take the country down with it.
When you get right down to it, “too big to fail” is a monopoly-type issue, which the DOJ handles with M&A. Just tweak the laws there and the problem is solved.
I don’t think the Fed can monitor investment houses or insurance companies. Just banks.
Well, that’s another reason to force financial activity back into actual banks.
You are probably correct that the Fed doesn’t literally have subpoena power, or receive statutory reports. But I am pretty sure the Fed has regular conference calls with all the players and uses that info in Fed actions.
There are lots of downsides either way.
The NYC Fed is already incestuous enough with investment banks… not sure we want to institutionalize it.
Also, if we are going to appoint an overseer, maybe we need one that is answerable to Congress; the Fed is too unaccountable.
I’m not sure who I trust less: The Fed, or Congress. I hate to say it but I think I trust the Fed more.
I have not seen more than these points, but the overall question to me is whether all of these pretend bank institutions get treated as though they are banks.
The systemic risk manager position I don’t know about — I agree with anon above in that the Fed has some responsibility for that already. But I am not sure what good that person will do unless that person has some authority to deal with that risk.
The ability to seize and dismantle large institutions probably means institutions that are not banks. This is fine by me.
There is something to be said about institutions getting too big and that is the problems of institutions that are big enough to get government to dismantle the regulatory scheme. It is just stupid to put together a new regulatory scheme that these institutions can dismantle pretty much at will.
If all this had been done 10 years ago that would have been great but the horse has already jumped the fence, don`t get me wrong, better late than never but permanent damge has already been done to our economy and things like record job losses need to be stopped now otherwise we are headed for a very bad place.
According to Geithner, the government does not have the power to seize non-bank entities, even if they are financial institutions. I think the Obama people are pretty smart, so I don’t doubt that he’s right.
I agree that we need more oversight on the M & A side. I doubt the anti-trust laws cover “too big too fail.” After all, the TBTF institutions weren’t monopolies, there is plenty of them. The anti-trust regulation doesn’t look at their financial exposure to the world economy.