Geithner to Propose Vast Expansion Of U.S. Oversight of Financial System

[bascule]

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/25/AR2009032502311.html

 

Geithner and Bernanke's plan for expanding oversight of the US financial system was made available today:

 

Treasury Secretary Timothy F. Geithner plans to propose today a sweeping expansion of federal authority over the financial system, breaking from an era in which the government stood back from financial markets and allowed participants to decide how much risk to take in the pursuit of profit.

 

The main changes appear to be seeking authority to seize other financial institutions which aren't banks... namely any institution trading in financial derivatives, hedge funds, and major insurers. They also seek to impose uniform standards on all of these institutions, including banks.

 

This seems like exactly what's needed per Greenspan's post mortem of his bad decision making:

 

I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was capable of protecting their own shareholders and the equity in the firms, and it has been my experience, that the loan officers of those institutions knew far more about the risks involved and the people to whom they lent money than I saw even our best regulators at the fed capable of doing. So the problem here is something which looked to be a very solid edifice and indeed a critical pillar to market competition and free markets did break down and I think that shocked me. I still do not fully understand why it happened and obviously to the extent that I figure out where it happened and why, I will change my views. As the facts change, I will change.

 

Clearly Geithner and Bernanke have a substantially different view (now) of how the financial sector should operate than it has been in the past, a view obviously shaped by the financial crisis.

 

Are these positive steps forward? I think so...

[Dudde]

That's a slippery slope, but for the most part I have to agree. I've always thought the financial district was insane about how they did things, but I didn't think it would screw up everybody - clearly something needs to change

[iNow]

I'll be very curious to see the parameters they define, like how big a company must be (and how that's measured) before the government is allowed to interfere. I can easily see the logic behind this, but I think an alternate approach might be better, such as using existing monopoly based law to limit the size the company can become in the first place. If they limit the size to the before mentioned parameters, then we could effectively eliminate the need for government to step in at all down the road to "mitigate systemic risk."

 

I'm just thinking out loud here... There are too many details I have yet to familiarize myself with before I concern myself too much one way or the other.

[Pangloss]

I don't know if these specific actions are the correct ones or not -- I have to ponder it. In particular the reservations expressed in the psots above seem logical. But I'm glad that we're moving forward on this, and I think that the general statement of "expanding oversight of the financial system" indicates the correct thinking.

 

My reasoning is that we're a mixed economy, and therefore regulation is not a bad word. That's a "period end of sentence" debate-ender right there. That having been determined, the sole remaining question is how much regulation is the correct amount. That is the dynamic in a mixed form of government.

 

In this situation the problem that we're faced with is that, for WHATEVER reason (i.e. even if this is the result of a specific case of flawed regulation vis-a-vis CRA), financial institutions clearly acquired FAR too much sway over the economy for the amount of oversight that was available and in place.

 

To summarize:

1) Changing regulations is how you fix a regulation problem in a mixed economy (which in some cases may mean less regulation, though that does not SEEM to be the case here).

2) There's a problem with the regulation of the financial sector.

3) It can be fixed, and fixing it is a good idea.

4) The specifics need to be carefully considered.

 

That's my take on it, at any rate.