Treasury Secretary Wants The Ability To Seize Insurance Companies, Hedge Funds

The Washington Post is reporting that Treasury Secretary Timothy Geithner will testify before the House Financial Services Committee today and argue that his agency needs broad powers to seize companies and “wind them down” without allowing them to enter bankruptcy.

From the WaPo:

Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill that was scheduled to address the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials say the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.

The government at present has the authority to seize only banks.

This would essentially cast the Treasury Department as a new “systemic risk regulator” with the power to deal with companies who, while they are not necessarily banks, are nevertheless “too big to fail.” It was generally thought that the Federal Reserve would eventually take up this role.

The second part of the plan would give new “tools” to the Treasury that it could use to prevent the collapse of a company, including guaranteeing losses, buying assets or taking a partial ownership stake:

Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.

What do you think?


Geithner to Ask Congress for Broad Power to Seize Firms [WaPo]

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  1. Anonymous says:

    Everyone needs to wake the hell up and see what direction this administration is trying to take the country. It doesn’t matter what your political affiliations are, this will not work and nothing good will come of it. Do you really want an icompetent government having this much authority?

    • HawkWolf says:

      @PembrokeBabatunde:

      What about incompetent businesses that are ‘too big to fail’?

      I agree, but I think the sword cuts both ways.

      • Inglix_the_Mad says:

        @HawkWolf: Agreed. I don’t like the government solution, but business has (once again) proved they can’t be trusted either.

    • orielbean says:

      @PembrokeBabatunde: But the Japanese were happy to do nothing and let their banks fail only a little while ago, and they are finally climbing out of a 10 year stretch of economic failure. If Obama sits on his hands and tries to “ride it out”, he risks looking like Hebert Hoover or do-nothing Bush. His Congress sucks, but he can’t let more failures occur either… Counter-cyclical spending (govt spending money during a depression/recession) does work when done properly. I’m not going to argue that Obama knows how to do it properly, but he does need to take action.

      • zyodei says:

        @orielbean: Where do people get their information? Are you serious? Are you a troll? Japan spent the whole 1990s trying to prop up every major firm in the country and following a hyper-keynesian model to keep from experiencing any pain. They followed a path that is very similar to the one we are following now. Firms were only allowed to fail after their had been untold billions of dollars wasted trying to prop them up. Seriously, where did you get your information?

        It’s worth noting that Bush did quite a lot – Obama’s plan to save the banks is very much a linear continuation of Bush’s plan. Just as Roosevelt continued and expanded many of Hoover’s programs to stem the fallout from the crash.

        Can you give me an example of a long term success from this keynesian “counter-cyclical spending” nonsense? Maybe the U.S. in the 1930s, it worked really great then…

        Seriously, someone has been passing around a lot of spiked kool-aid in the economics profession.

        • Noah Smith says:

          @zyodei: U.S. fiscal policy of the 1930′s can at best be described as a flirtation with the Keyensian model. Given the evident failure of neoconservative economic ideology we are experiencing now, can anyone really argue that Obama’s plans are not worth considering? Does anyone have better ideas? What is proposed is actually quite moderate and responsible when compared to outright nationalization. They want to replace the current management of these entities(who up to now have only cared about the short term gain for a select few) with management that can truly look to the long term benefit of the whole. The federal government is the only institution that can truly do that. That having been said, this doesn’t mean that they will succeed. But again, anyone have better ideas?

          • zyodei says:

            @Noah Smith: A couple of points. First, a semantic one: What in the world do you mean by “neoconservative” economics? Neoconservatism is an ideology defined by it’s agressive foreign policy stance. There is nothing unique about neocon views on economics other than that they are generally opportunistic.

            For the record, Bush raised spending and deficits more than any president since WWII. While his policies might be called “neoconservative”, ie corrupt, hubristic, and violent, they are certainly not “conservative.” There is not that much difference between borrow, spend “neocon” policies and borrow, spend, and regulate “liberal” ones.

            I should note that it seems to be much easier to cite examples of where Keynesian ecomomics failed because we simply did not borrow enough, than to cite any unqualified successes for it. It reminds me of Paul Krugman, saying that Obama’s plan to borrow much more in one year than REAGAN did in his eight is simply “not enough spending.”

            Here’s a success story for Keynesian economics: U.S.A., 2001. Economic likely to go into recession because of terrorist fears and stock market bubble collapse. Government borrows and spends lots of money and lowers the interest rate to avoid feeling any pain. It worked out great, right?

            One part that can’t be denied in this is the moral hazard government created by giving the assurance of protection, after for instance the LTCM fiasco. Freddie and Fannie played a huge role in creating and legitimatizing CDOs, because they were backed by the U.S. federal government, and lended them security and credibility.

            As to what we should do…well, shoot, what is bankruptcy for anyway? Yeah, it would hurt – a lot. A lot of companies would go under, a lot of jobs would be lost. But in the long term, it would end up better. But it would resolve much more quickly. It’s much preferable to creating our own American mob of “zombie” companies lurching and groaning across the landscape.

            Of course, that would be ugly. But the alternative we are trying now is pouring hundreds of billions of dollars trying to legitimatize buildings that cannot be legitimatized. They are dead, and the sooner we realize that the better.

            The end result of the current policies will be at least ten to twenty years of economic malaise. And by then the baby boomers will be in full retirement…

  2. Skater009 says:

    Why Not . pay back is a bicth. AIG Assholes

  3. Plates says:

    Sounds like nationalization, comrade.

    • hypnotik_jello says:

      @Plates: Yeah, because being left alone worked out so well?

      • MitchV says:

        @hypnotik_jello:

        Relative to the rest of the world, yeah.

      • Bladefist says:

        @hypnotik_jello: uhhh we are the richest and most powerful nation in the world. People risk their lives to come here.

        Yea, something worked.

        • hypnotik_jello says:

          @Bladefist: You think AIG being unregulated and making crazy bets with money it didn’t have is called “working” ?

        • conquestofbread says:

          @Bladefist:

          Where are you getting your information?

          We’re at the bottom of the top 10 for per capita income, and our GDP aint the shit either. Most powerful is a very subjective statement.

          • howie_in_az says:

            @conquestofbread: You don’t see people clinging on to makeshift rafts to enter Canadia or Russia, do you?

            • pop top says:

              @howie_in_az: People come to America more for the idea of America (freedom, liberty, justice) than our economy. There are illegal immigrants that do risk their lives to get into countries other than ours, we just don’t hear about it because it doesn’t affect us (dey ern’t tekin er jerbs).

              Not that I’m saying America is a bad place or anything, but look at the UN’s Human Development Index for 2008; America is #15. Since the HDI’s inception in 1990, we have never been the #1 country on the list, and our position has been steadily dropping for the last few years.

              [en.wikipedia.org]

              • ZombieFlanders says:

                @squinko:
                Your point would mean more if the difference between the top 30 countries wasn’t within a 5% range… the top country is at 96% and the thirtieth country is at 91%. Would be a lot more impact if the U.S. were at, say 70%, 60%, 50%…

                Oh no, we’re in the 95th percentile! We’re underdeveloped!

      • mdb002 says:

        @hypnotik_jello: What was left alone? What was deregulated? What regulations were not enforced?

        Regulation did not work.

        It was not left alone.

        • bravohotel01 says:

          @mdb002: “What was deregulated? What regulations were not enforced?”

          Does “REPEAL of the Glass Steagall Act” ring any bells?

          Regulation WAS repealed.

          Banks were free to make imaginary, unsustainable wealth products, which collapsed as expected when the debtors defaulted on their loans and the whole rotten house of cards fell down.

          Funny (and sad), this is quite similar to the run-up that lead to the Great Depression: speculation on speculation.

          We didn’t learn back then, and based upon comments such as yours and your compatriots, we still haven’t. I guess we’ll get to rinse and repeat.

          More about GS: [bit.ly]

  4. shifuimam says:

    It seems to me like the current economic situation is just being leveraged by a Democrat-controlled federal government to try and get more and more control over private business. This might sound like a good idea right now to some people, but we have to look at the bigger picture – what does this mean thirty or forty years from now? How could such a policy be used against us in the future?

    Just sayin’.

    • hypnotik_jello says:

      @shifuimam: Hello, this mess started far before the current administration, back in the days of the Clinton administration, by a bill sponsored by Republican Phil Gramm and agreed to by a majority of Democrats. It has nothing to do with dems or repubs, but of the rich enriching themselves further by exploiting the current economic situation.

      As complex as all the finances are, the politics aren’t hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system – transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

      - [www.rollingstone.com]

      • mdb002 says:

        @hypnotik_jello: Why would expect anything different then the picture Rolling Stone paints?

        Honestly, people who believe there will be/are super humans in charge of regulations ready to save us from all possible trouble – need a brain.

      • Trai_Dep says:

        @hypnotik_jello: Utterly and factually wrong, if you’re talking about nuking the Glass-Steagal restrictions. 98% of Repubs were for repealing it, and the Dems formed 88% of those voting against it.
        Either way, it was a veto-proof majority, so any action by the President, with a GOP-controlled Congress calling the shots, would have been futile.

        This is Conservatives’ baby, all the way. Suck it up and take a deep bow. :)

        • zyodei says:

          @Trai_Dep:

          No, it’s not fair to pin this one any one party.

          Freddie and Fanny packaged and sold more of these CDSes than anyone else combined. They played a large role in inventing them, and their government backed guarantee legitimatized them. The Fed bears quite a bit of culpability too, as does our spending on things like War.

          True, it was Wall Street connected Republicans who spearheaded the repeal of Glass-Steagal, and this certainly contributed a lot to the crisis. But it is naive to pin the whole thing on the repeal of this law.

          • Trai_Dep says:

            @zyodei: Would the Finanapocalypse still have happened if Fannie and Freddie didn’t exist? Yup.
            Same, if Glass-Steagal was in place? Largely, no.

            And, G-S was the first of a tsunami of Free Market Fundamentalist laws that eviscerated reasonable, common-sense regulation.

            I could go on and quote the vote breakdowns for succeeding efforts at removing sensible oversight over these things, but we both know they’ll have similar breakdowns: “conservatives” left the Republican party eons ago, unfortunately. Something to do with Terry Schiavo needing “rescuing”, I suppose.

    • veg-o-matic says:

      @shifuimam:
      This seems to assume that the way private business works now is somehow in “our” favor.

    • mac-phisto says:

      @shifuimam: this is just fixing a loophole. when glass-steagall was repealed, banks were allowed to mix with hedge funds & insurance companies. despite this, only banks remained regulated by the treasury. this is why we have many of the problems we have today – insurance companies & hedge funds were meddling in financial markets without any government oversight.

      personally, i’d rather they rebuilt the walls between the 3 industries instead of pushing for the ability to regulate them all. even with regulation, the prospect of malfeasance between these segments of the industry is just too great.

      • johnva says:

        @mac-phisto: I agree with you that the walls need to go back up. But I think that government also needs to regulate even within those walls. I’m not sure that things like hedge funds should be allowed to exist in their current form. Why should investment be regulated more or less heavily depending on whether you are a hedge fund or an investment bank? Hedge funds have lost their nominal definition and are now essentially just a way to skirt regulations.

        If I were in charge, I would put the walls back up AND force all hedge funds to be reorganized as banks or mutual funds (take your choice). Maybe not precisely that, but something like that.

        • johnva says:

          @mac-phisto: Oh and I’m not sure that credit default swaps should even be allow to exist, either. To me that whole scheme seems to encourage excessive risk-taking on the part of banks while setting up a single point of failure in the insurance company selling them. If they were outlawed, then we wouldn’t have to bail out another AIG and banks would be forced to actually weigh the risks of their investments against their own futures.

          • mac-phisto says:

            @johnva: possibly. it’s really hard to say if their risk outweighs their overall benefit, or if the disproportion of that ratio is only apparent b/c of a lack of regulation & proper management. realistically, one could make the argument about virtually any type of insurance.

            i’m inclined to agree with you, but honestly it’s b/c of a general ignorance of how exactly that industry could be regulated successfully.

            • johnva says:

              @mac-phisto: Sure, you could make that argument about any kind of insurance. I do think there is a big difference between pure financial insurance like CDS vs. say, life insurance or car insurance or fire insurance, though. In all these latter cases, there is a damn good reason why I, as the insured, would not want to do things that cause the policy to pay out, because there may be other costs to me besides just financial ones. If I kill myself doing something risky, my life insurance pays out, but I’m dead. If I get in a car accident intentionally, my car insurance pays out (if they don’t discover the fraud), but I’m risking getting killed or injured. If my house burns down because I did something stupid, my insurance pays out but I lose all my possessions of sentimental value, etc.

              Not so with CDS. If my subprime MBS goes bad, I lose NOTHING as long as the insurance company (AIG) keeps paying out. I have no reason to care about the risk of that individual decision, and it only becomes a problem once it becomes a huge systemic problem that destroys the insurance company itself. Regulation could help, but when all those easy short-term profits were there to be made, the banks had a huge incentive to try to get around any regulation. It’s obviously a failure of risk management, but that’s partly because people are inherently more blind to long-term and systemic risk than to short-term and localized risk (especially when their pay is directly based on short-term profits, mainly).

              I don’t claim to be an expert on this, but I have family that are deeply involved in the finance industry and have made large amounts of money there. They were who first told me that CDS should just be outlawed entirely…

  5. SarcasticDwarf says:

    A great idea, but do we really trust that idiot (and the ones that will follow in his position) with that power?

  6. Silversmok3 says:

    Its the fair markets job to reward or punish companies, and the governments job is to see to it that the markets remain fair.

    I dont see giving the treasury secretary the power to seize companies helping anyone. Scratch that-itll help the beleagured print news industry by creating a new route for scandal and corruption.

    • johnva says:

      @Silversmok3: That’s not how it works. The reason we allow the government to take over failed banks is that when they go down, they create a lot of collateral damage. If you don’t see how the government having the power to intervene and engineer a graceful fall helps people, then you haven’t thought it through very well. This is kind of like what the FDIC does: they seize a failed bank, determine how much their remaining assets and accounts are worth, and arrange to sell them off to another bank, while ensuring an orderly transition for the bank’s customers.

      That is a good thing, and frankly I’m all for anything that regulates hedge funds more heavily. I said this at the beginning of this crisis and I’ll say it again: hedge funds are weapons of mass financial destruction due to their highly unregulated nature. They really should just be outlawed, but at the very least we need to heavily clamp down on their activities. Otherwise there is a huge risk that they will gamble and take out more and more of the world economy via speculation. Likewise, some insurance companies like AIG seemed to think that their business is enormous-stakes gambling with the future of our economy and country. If we’re seeing insurers do that, we definitely need to have strong government control over them, just as if they were a bank.

    • mac-phisto says:

      @Silversmok3: you’re right: it’s the government’s job to keep the market fair. the problem is, the market isn’t fair. at this point in time, insurance companies & hedge funds can speculate in the financial markets without government oversight whereas a bank is subject to this oversight. more appalling is that a bank’s insurance or fund division can remain unregulated, allowing banks to skirt activities that would otherwise be considered illegal.

      the choice here is to regulate insurance cos. & hedge funds like banks, or rebuild the walls that kept them separate (& our economy safe from complete implosion) for nearly 70 years.

  7. m4ximusprim3 says:

    While I’m against such an unprecedented scaling of gov’t power, I think this is a necessary short term function.

    I would provisionally approve this on a company-by-company basis until the large, overburdened corporations have been dissolved, and then put it back in the box and go back to improving government risk oversight.

    • Yossarian says:

      @m4ximusprim3: You don’t actually expect the federal government to put power back in the box, do you?

      • m4ximusprim3 says:

        @Yossarian: *sigh* no, but it’s a nice idea.

        If I’m being a stark realist, I’d say it probably doesn’t matter because in 5 years, china will have stopped buying our debt and our currency will devalue so sharply that it’s all moot anyway.

        But if I really think that way, I’d quit my job and start farming okra. So I prefer to be optimistic ;)

      • hypnotik_jello says:

        @Yossarian: Uh, do you know that the Federal Reserve already has unprecedented (unchecked and unauditable by Congress) power. They’ve already injected over 3 trillion into the banking system since the crisis began, but people are getting all huffity about the puny 800bn stimulus package passed by congress.

        • HIV 2 Elway says:

          @hypnotik_jello: So two wrongs make a right?

        • Yossarian says:

          @hypnotik_jello: I know what the Fed has done, yes.

          @m4ximusprim3: Just say no to okra. Tomatoes, and I don’t mean the mealy red pieces of goo in the stores, are the way to go.

          Optimism is good, but the thought that the federal government would ever put any power back in the box is heading Mach 1 toward Pollyanna.

          On second thought, fried okra is tolerable, if still inferior to good tomatoes.

    • redskull says:

      @m4ximusprim3: Sounds a lot like what Senator Palpatine proposed, and we all know how that turned out.

      That’s right, 3 crappy prequels.

    • AtomicPlayboy says:

      @m4ximusprim3: Precisely. That’s my problem with all of these disaster-relief measures of late: none of them are sunsetted. If we need to engage in unorthodox tactics to prevent financial collapse (though I remain unconvinced that we actually do), then so be it, but let’s make sure that the structure of the system is relatively unchanged once the situation is stabilized. The Obama administration, and to a greater extent Congress, is determined to leverage the current economic problems as a means to greatly expand governmental power, which is why none of the proposed remedies have expiration dates. This should scare everyone. You only need to look at Social Security to see a well-intentioned system which should have gone away a looong time ago, but has instead become a millstone which will burden future generations until the Ponzi pyramid collapses.

      • johnva says:

        @AtomicPlayboy: Expanding governmental power is not always a bad thing. In this case, it’s a good thing if it prevents this from happening again. FDR greatly expanded governmental power when he created the FDIC, which kept our savings safe for generations. It’s not always wrong, and the view that it is is foolish libertarian dogma.

        Also, there is nothing wrong with Social Security. It needs some tweaks, but it’s fundamentally sound.

  8. rpm773 says:

    If AIG is against it, I’m for it. If they’re for it, I’m against it

    I like the provision for the idiot answer in the poll.

  9. SkokieGuy says:

    Rather than discuss financial policy and the politicalimplications of this proposal, isn’t anyone disturbed by the size of this man’s forehead?

    • redskull says:

      @SkokieGuy: That’s more like a FIVEhead. Thank you ladies and gentlemen, I’m here all week.

      Try the veal.

    • HIV 2 Elway says:

      @SkokieGuy:
      He looks like Wayne the Brain…

    • Oranges w/ Cheese says:

      @SkokieGuy: Technically, it is just an optical illusion based on the position of his hair. When you are taught to draw, you are taught to put the eyes smack dab in the middle of the skull, and that is where his eyes are.

      But his hair being alllll the way up there on top of his head does give him that sort of weird “Eegon” kind of appearance, doesn’t it?

  10. dlynch says:

    is anyone else bothered by this “too big to fail” argument? what exactly is this supposed to mean? let the poorly run companies collapse – our entire economy is not based on the success or failure of AIG or any other company.

    AIG has enough liquidity that they would have never even considered bankruptcy without the government bailout. they would have figured things out themselves, and that’s exactly what we should be forcing them to do. they made their bed, let them lie in it.

    also, the idea that bankruptcy is a bad idea for these companies is ridiculous. it is a well crafted system that would allow them to reorganize if necessary and survive if feasible. let the structure already in place do its job before considering these ridiculous expansions of government power. these are the same jerks that failed to stop madoff after folks had been reporting his shadiness for years. they are simply not up to the task.

    • johnva says:

      @dlynch: The problem is, our entire economy IS tied to the fate of companies like AIG, Citigroup, etc. They are so big and so deeply intertwined with others that we don’t have much choice at this point.

      The real issue is that this reveals that we haven’t been enforcing antitrust laws properly. Too big to fail means too big to exist and regulated properly, so we really should bust these banks and insurance companies down to size as a preventative measure. Now, it’s too late, because of decades of not enforcing the antitrust laws.

      • mac-phisto says:

        @johnva: i agree that our anti-trust division needs to get off its arse, but i don’t think it’s too late. many of these companies can easily be carved up into various entities with little overall effect on their business. as a whole, a company like citi is little more than a shell of dozens of little companies operating virtually independent of each other.

        the problem, as you state, is the intertwining; the shared pool of assets. companies like aig were using say, the assets of their life insurance division as collateral for the workings of their financial services division. unwinding one from the other is nearly impossible.

        this will work itself out eventually, but it’s important that we take the proper action NOW to ensure we don’t forget about what needs to be done when the money train starts rolling in again.

    • HawkWolf says:

      @dlynch:

      Look at the auto companies. They are huge, and employ large numbers of people directly, as well as offering the main source of business for other companies that employ even larger numbers of people. If they were to literally close up shop tomorrow, all of those people would be out of a job. In an economy where everyone else is slashing jobs, where would these now-unemployed people go?

      It’s definitely risky to allow a company to get so big that everyone depends on them, especially when that company’s product is something that people could very easily decide they didn’t really need to buy right now.

    • Cassius98 says:

      @dlynch: You are obviously speaking about a subject you know nothing about… The reason they say AIG is “to big to fail” is not the AIG company directly. It is all the smaller units that go down with it. Domino effect. AIG underwrites many insurance plans… so if they go down and people try to pull their money out, as not to lose it, company anfter company goes down. Understand it now.

      I am not saying what the current admin is doing is the best plan but unless you have a better solution (without talking from your rear) you just have to let what they are doing ride out. If it works the republican party will finaly die off all together. If it fails… we are all finished. So either get behind them or come up with a better plan.

  11. nataku8_e30 says:

    @shifuimam – While I do agree with you, I find it somewhat hypocritical that many Republicans are suddenly adopting this viewpoint, while since 2001 they (many, not all) have done exactly this to personal privacy and freedom in the name of national security. The justification was always “we’ll only do this to the bad people out there” but the distinction was always left to the government.

    • Trai_Dep says:

      @nataku83: Well, it fits with their worldview: individuals are bad, corporations are good.
      So, yay, consistency?

      • IamNotToddDavis says:

        @Trai_Dep: Conservatives are the ones trying to protect the rights of the individual.

        But please continue on your quest to misinterpret all conservative theory. You’re like an expert by now.

        • ideagirl says:

          @IamNotToddDavis: There was a time when that was true, but, um, have you been here the last eight years? Bush threw that out the window.

          • HIV 2 Elway says:

            @ideagirl: Bush is a Republican not a conservative. The two terms are not synonymous.

            • Trai_Dep says:

              @HIV 2 Elway Resurrected: Good point. For extra credit, compare/contrast your statement with, “Stalin is a Socialist but not a Communist. The terms are not synonymous.”
              Use historical examples to buttress your argument. Cite relevant coursework, when applicable. Remember to keep comments in line with the theme of the course, “How redefining failure makes any blind ideology a continuing success regardless of the torrents of blood and rivers of tears that ensue.

              Let’s say, 30 minutes until we call for all pencils to be laid down?

  12. Dr. Eirik says:

    I’m sure that they will pinky promise that this kind of power won’t be used to nationalize other private companies that can’t be allowed to fail, like private hospitals and medical clinics, auto manufacturing, etc, etc.

    I suppose that I can grudgingly allow that some companies are too big to fail instantly, but in that case the government should step in only to smooth the transition over. It’s not like AIG is the only company that does what they do, nor is the entire company a money pit. There are profitable areas inside it that I’m certain other companies would buy up willingly. Sell those off, break up AIG, then divest public money.

  13. johnsakalauskas says:

    Apparently, contractual obligations were important when it came to AIG and its counterparties, however it’s okay to nullify contracts of companies seized by the Treasury. How broad is the definition of “systemic risk” and would be a huge leap for Walmart to meet the criteria?

  14. Jim Topoleski says:

    “is anyone else bothered by this “too big to fail” argument? what exactly is this supposed to mean? let the poorly run companies collapse – our entire economy is not based on the success or failure of AIG or any other company”

    If you have not been watching the news lately, then yes I guess you could see it that way. The thing is in the real word, it doesn’t work like that. Companies are so entrenched in each other these days that one failure of a company like AIG will unknowing kill hundreds of other companies big and small. To put in perspective, AIG is in the mess it is thanks to Leman Brothers and Bear Sterns, and just one sector of AIG is in debt and damaged enough to destroy the ENITRE company at this point, which people for months where saying couldn’t happen.

    “also, the idea that bankruptcy is a bad idea for these companies is ridiculous. it is a well crafted system that would allow them to reorganize if necessary and survive if feasible.”

    No one said it was bad for them, its that its bad FOR US. Restructuring companies this large always means massive layoffs. Where we are shedding jobs left and right 100,000 a month, dropping a couple million people in on that is going to basically drop this country to a third class nation. Granted I am exaggerating that, but it will cause sever decades long damage to our economic system.

    • Balentius says:

      @Jim Topoleski: “Where we are shedding jobs left and right 100,000 a month, dropping a couple million people in on that is going to basically drop this country to a third class nation. Granted I am exaggerating that, but it will cause sever decades long damage to our economic system.”

      And that is exactly what I have issues with. It is the same problem with these companies paying “retention bonuses” – where are these people going to go??? As a good example, once Enron collapsed, ex-employees were the ones with the most trouble finding jobs, since (rightly or wrongly) they were identified with the company’s woes. Does anyone seriously think that an AIG employee, especially at a high level, is going to be chosen for a job?

      Ironically, if the concern was for the additional job loss, we could simply pay all of the empoyees making less than x dollars/year (100k<150k) to stay home for a year, and probably be better off than what is happening now.

      Disassembling AIG is needed – but I really don’t like the idea that the government can come in and break employment contracts at will. It may be necessary, but there needs to be VERY strict criteria on that, as well as a strong sunset provision.

      • johnva says:

        @Balentius: Well, I think it depends on whether the employment contracts were made in good faith or not. I’m not convinced that they were in the case of these AIG jackals. I think that they wrote those contracts, which would be absurd on their face in this sort of job market, to protect their bonuses from what they knew would happen when the company went down in flames. In other words, they created the contracts specifically because they knew the government was going to end up stepping in. It was premeditated theft from the taxpayers.

  15. Christopher Carey says:

    Everyone is supposed to be able to predict the future. If all of this works Obama is a genius if not a dummy. The fact is no one really knows. How do you get millions of people to feel better about the economy? You put them to work and let them save some money while buying stuff.

    This notion that the administration wants to control everything private is silly. Like Obama wants MORE to be responsible for?

  16. razremytuxbuddy says:

    Wow. This is truly a tough issue. If it were AIG, I’d say heck yes, I’m for it, and get on with the process of seizing AIG–now. The proposal is basically a streamlined form of receivership. However, I fear this type of power could be used to carry out corrupt or misguided seizings. It does make me think of Atlas Shrugged again. [shivers]

    I think I’d like to see this power granted temporarily, with a firm sunset date at which time the regulatory environment will have been corrected to prevent another meltdown like we have experienced this time around.

    • johnva says:

      @razremytuxbuddy: If regulations are temporary, it will happen again. We need permanent, ironclad regulations like those that kept our economy safe for about 50 years after the Great Depression, but adapted to modern banking.

      Don’t take Rand too seriously. Her stories bear little resemblance to the real world, thankfully.

  17. Trai_Dep says:

    It’s not as though there won’t be legions of Conservative pols lying in wait screaming “Communism” or “primacy of contract law (when applied to white-collar criminals!” when an Enron or AIG jumps the rails and tries to take out the US economy.
    There will be a political sh*t-storm each and every time this is used, which tempers the willingness of the Treasury Secretary to use this. Plus he has to get the President to approve and a majority of the Fed board, who are independent.

    I don’t think it will be something done lightly and as recent events have shown, systemic risk is a concern. There should be an option to prevent Too Big To Fail entities from becoming that big, and foolhardy before the blood, tears and retirement savings of millions start gyshering out.

    Plus, even the threat of the Treasury Secretary being able to do this would, to an extent, keep globe-threatening execs from pulling another AIG.

    • johnva says:

      @Trai_Dep: I tend to agree, although I also do think there are some risks associated with this approach. My biggest problem is that it doesn’t just regulate these hedge funds and insurance casinos out of existence (at least in the way they have been operating).

      But yeah, as I said upthread, what this really points to is decades of failure to regulate and to enforce the antitrust laws. Eternal regulatory vigilance is what is required to prevent this sort of thing from happening, and it was intentionally neglected ever since Ronnie Raygun took over. We need to prevent any problem like AIG from ever happening again by making sure that no insurance casino ever gets as huge as AIG again.

      • Trai_Dep says:

        @johnva: I think hedge funds, as originally designed, make sense: sophisticated investors, reasonable leverage, a mitigation tool.
        Their interconnectedness, their insane leveraging levels and the insane growth of the sector in the latter 2/3rds of their existence made them become financial tools of mass destruction, though.
        If there were some way of eliminating these three destructive factors and injecting some kind of transparency and disincentives to make only short-term bets, I’d be okay with having them around.

        …Although, re-reading the above, I’m unsure the hedgers would be happy with the above – breaking the above rules is sort of the point of being a hedge fund (well, that and the crazy fees), isn’t it?

        • johnva says:

          @Trai_Dep: The problem with hedge funds is not the original conception. That I’m fine with. I should be clear that what I am totally opposed to is hedge funds being used in the way they are being used now. They started as a risk mitigation tool for wealthy and sophisticated investors, and became a way to circumvent regulations and dodge taxes (for the hedge fund managers themselves).

          You’re correct – the point of hedge funds in practice is to be able to get away with breaking the rules. That’s how Madoff was able to get away with it for so long. That function of hedge funds needs to be regulated out of existence, or hedge funds need to no longer exist.

  18. GreatWhiteNorth says:

    Seems reasonable, considering the people (tax payers) are funding the industry in order to prevent it from going under and taking the rest of the economy with it, that the people should be in a position, through their duly elected representatives, to take control / enforce policy when it is in the best interest of the people.

    This of course is a change from the previous 8 years when corporations were being given more and more control over the government, policy and the public treasury as if corporations were the preferred citizens. Of course they aren’t the preferred citizens and contrary to some pundits shouldn’t have anywhere near the power and sway over policy and people that they currently do.

    America, rise up and reclaim for real the power of the people to decide your own future and restore your constitutional rights.

    Poster shifuimam has identified that this power over corporations could be missused by politicians and I agree. To prevent this hold your politicians accountable everyday for the decisions they make and the votes they cast in your name. Work to ensure that the people who govern your country govern for you.

    Of course to make this happen you may actually want to get out and vote once in a while.

    • GuinevereRucker says:

      @GreatWhiteNorth: We failed to listen to LIncoln in the 1800′s:

      “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country; corporations have been enthroned, an era of corruption in High Places will follow, and the Money Power of the Country will endeavor to prolong its reign by working upon the prejudices of the People, until the wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war.”

      Quite poignant in today’s situation, don’t you think? In the old days, corporate charters were not only given by the government, but revoked at the drop of a hat if a company failed to obey the law. Now it seems that corporations have the rights of a person – with unimaginable wealth at their disposal.

  19. DJFelix says:

    I’m calling this new form of Government Marxist-Obamism. This is Communism plain and simple. Obama should just come out and admit it.

    If things continue down this path, states will start to secede. This is an egregious power-grab that not only violates the Constitution, but violates State sovereignty.

    Damn I’m glad I live in Texas. I hope we secede first!

  20. JGKojak says:

    Calm the fuck down people.

    Someone has to do something. The choices:
    1) Let all these companies fail. And bring the world economy to a grinding halt– and see what 30% unemployment looks like.

    2) Use Govt $$ to invest and seize control of company infrastructure. Been there, done that. AIG ruined this idea with their irresponsibility.

    3) Nationalize the banks. They haven’t done this yet and have said repeatedly they won’t. Seems like all the socialist panic would be legit if THIS is what they were going to do- but they’re not. So just stop.

    4) The Geitner Plan- use govt $$ to revest/insure lending, seize irresponsibly run (read: criminal, because in a Madoff sense that’s what these companies have been doing) companies. Not a perfect solution but better than the others so far.

    5) The other thing they won’t do: end the whole federal reserve system of financial governance and return control of the financial system to the people- however that needs to look.

  21. Trai_Dep says:

    From the NYT article:

    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.

    So, since 1935ish, how many banks have been taken unjustly? Zero. Despite the clamoring of the paranoid, do-nothing few here, it’s simply updating existing powers to face systemic threats we all collectively face.

    Jeez guys, how about you step away from the keyboard and resume your hunt for Black Helicopters instead?

  22. Todd Harless says:

    sweet, glorious, socialism….I mean Change…oh crap someone call the Sons of Liberty, quick!

  23. HiPwr says:

    We all know that politicians can be trusted. Just ask them!

  24. chrisjames says:

    I don’t immediately trust the government to do better than the dopes that ran AIG and co. into the ground.

  25. kwsventures says:

    Why the heck do we have bankruptcy laws? It seems the federal government doesn’t want to use them when obviously needed. … Our “neighbor” to the south, Hugo Chavez, wants to control everything in his country. It seems our government is a little more subtle and moving the same direction.

    • mac-phisto says:

      @kwsventures: the problem with bankruptcy (in terms of some of these larger institutions) is the waterfall effect that’s bound to occur. imagine, for a moment, that companies B, C, D, & E are reliant on monies owed to them by company A. having those debts liquidated would mean each of them would also have to file bankruptcy. now imagine that companies B1, B2, & B3 are reliant on B; C1, C2, & C3 are reliant on C; & so forth. this is what we’re dealing with here…a ponzi of epic proportions.

  26. hi says:

    You want the truth or you want to stay in denial? The change you asked for will be socialism/tyranny.

    Powerful international bankers are controlling your elected officials. There is no difference in the agenda’s of both partys (Dem/Rep) because they all are on the same team as these bankers.

    They (the bankers) have created this problem by design and are now saying they are going to save us by giving themselves more power so they can consolidate all the big businesses. They intend on crashing the world’s economy in order to create a one world bank and new currency.

    WATCH:


    + Watch video

    • mac-phisto says:

      @hi: i think maybe you need to do a little more reading on political terms. if you did, you’d understand the following:
      1) socialism & tyranny are, by definition, incompatible.
      2) while bankers may support despotic rule, they most certainly wouldn’t support a socialist economic system (since they would all be jobless).
      3) the world bank already exists & it’s been meddling in the affairs of free (& not-so-free) people around the world for the last 65 years – just not here in the US so much.
      4) knock. knock. it’s the world bank & it’s time the U.S. started on “our program”.

    • Trai_Dep says:

      @hi: You DO realize that Socialist have longer, richer, Tantric sex, right?
      Why do you hate good luvin’ so?

  27. Gokuhouse says:

    It’s amazing how fast our nation is heading toward socialism. After the government gets control over all the large corporations that are too big to fail they will then seek the small ones too…

    It won’t end until they change our nation into Cuba or China.

  28. Saboth says:

    I think there needs to be a TON more oversight on these companies, as evidenced by the fact their greed and mismanagement have wrecked the entire world’s economy. It is obvious that pure capitalism doesn’t work. If we let these companies fail, America would enter a 2nd depression that would probably be worse than the first. Bailing them out means that next time, they will pursue even riskier ventures, because hey…if the gamble doesn’t pay off, the government will always bail us out, right? I don’t know about the government seizing whole companies though…there needs to be a middle ground. Far more regulation and oversight. No more speculative trading jacking up gas/food prices so that it cripples our food supply and transportation, etc.

  29. chauncy that billups says:

    Assuming the economy doesn’t turn around that much in the next year, the democrats are going pay the fucking piper like never before in 2010.

  30. bohemian says:

    I actually think this is a really good idea. We have some very bad systemic problems hanging out there. One being that the rating system has been proven to be a sham. The other that there were rollbacks in regulation on insurance companies. You think having people’s investments evaporate was bad. Just wait until your home owners insurance is proven to not have the funds to cover losses. The insurance sector has some unbelievably scammy operations going on that don’t have the funds to pay the proper portion of losses they are required to have. I would much rather have the fed seize a company rather than have thousands of people be SOL after a disaster.

  31. JimK says:

    What do I think? I think that we elected an idiot to replace a moron, and that this is just another power grab by government.

    Boy, good thing we didn’t elect that McCain, huh? Good thing. Really dodged a bullet there….

    • johnva says:

      @JimK: Yeah, actually we did dodge a bullet by not electing McCain. Phil Gramm was one of his chief economic advisers and might well be secretary of the treasury now if we had elected McCain. Gramm’s career in the last 20 years has been based on manipulation of the political system to enable massive-scale financial fraud. He is the number 1 person most responsible for this mess, and yet he is now publicly saying that he was totally in the right.

      • Trai_Dep says:

        @johnva: I actually didn’t fear McCain so much.

        After all, there wouldn’t be that much he would inflict on the US economy.
        Considering that by January 21st at the latest, his fresh corpse would have been found in the West Wing master bedroom, with Sarah Palin standing over it holding a pillow, wearing nothing but that smirk.

    • Oranges w/ Cheese says:

      @JimK: Maybe we didn’t dodge McCain, but I am so GLAD we dodged Palin. My god.

      And give the man a fucking chance, ok? He’s been in office for TWO MONTHS and you expect him to right TWELVE YEARS of poor economic policy?

      Come ON.

  32. boxjockey68 says:

    I’m for the constitution. I am not for socialism. That’s that..

  33. Wang_Chung_Tonight says:

    Me: “look I made a dime!”
    Uncle Sam: “GIMME GIMME!”

  34. bmorg003 says:

    I understand the argument, but I think this is the wrong approach… Instead of being able to take over companies that are too big to fail, we should instead focus on preventing companies from becoming too big to fail and limiting the effects of their failure on the greater economy… Glass Stegal should also be reinstated and these credit default swaps should be renamed and classified as what they should be – collateralized debt obligations (with actual collateral to support it). Geithner nor anyone else should have that much power…

  35. RogerDucky says:

    “Winding down” is what the bankruptcy courts are for. Why NOT let the companies enter bankruptcy? So people don’t panic? But the government can guarantee parts of what the companies had and calm everyone if they want. I mean, what’s what FDR’s “bank holiday” was for, right?

  36. Ixnayer says:

    I’m just wondering when the Obama Administration will quit playing around and just change our flag to the hammer and sickle.

    • Ubik2501 says:

      @Ixnayer: I’m wondering when people like you are going to start making actual arguments instead of trying to find the most eloquent way of catchphrasing a germ of an idea that doesn’t take into account the actual definitions of words.

      Seriously, Trai_Dep and others are making long, insightful posts full of actual logic and information, contributing ideas on how the economic situation can best be resolved, and this is the best you can come up with?

      Good lord, Ignatius J. Reilly could do a better job of trying to convince me of something.

    • Oranges w/ Cheese says:

      @Ixnayer: Yes, because its so obvious we all hold closely to the tenets of Communism all of a sudden.

      Socialism != Communism

      Anyone? Can you not see that they are spelled differently not to mention they are completely DIFFERENT viewpoints? Yes, they have similarities, but as a whole they are NOT THE SAME THING.

      Go live in Russia or China for a while, and come back here and see how much better we have it, even now, when everything sucks. You have clean water, and you have food, so STFU.

  37. stevgex says:

    This coming from a guy who can’t even figure how to hire a staff.

  38. ironchef says:

    I trust Geithner more than your everyday CEO making forward looking statements on CNBC.

  39. consumerd says:

    I am kind of on the fence.

    Good points

    1.) Being able to terminate contracts for people making bonuses when companies fail.

    2.)Taking a partial ownership stake= Performance notice for CEO’s and the board of directors. No more just handing out money.

    Bad points

    1.) Government control: why not just let them fail. Japan did and they were down for 10 years.

    2.) Government too big: Self explanatory.

    it’s got some good points and bad points. Unfortunately, I think we might have to take the good with the bad if we are going to fix the problems. If we did let everyone fail how long would our depression last this time? my guess is like Japan’s lasted 10 yrs, ours may last longer, and hurt longer.

    Keeping an objective mind.

  40. MooseOfReason says:

    This is a power grab.

    It’s an experiment. The government is trying to see how much power it can take, how much they can get away with.

    Unfortunately, it’s working pretty “well”.

  41. SillyinPhilly says:

    Is anyone surprised that our Commander in Chief is a socialist? Let the companies fail and more efficient ones will take their place. Only one company from the original Dow index still exists. What makes people believe that if these companies fail that others won’t replace them?

  42. ageshin says:

    It sounds reasonable to me, but I would like to see more details, the devil is in the details. In someways this sounds like a super form of bankrupcy. It seems to be a kind of nationalization to reorder the stressed company. this could be a good idea, or it could be another way of dumping a companies obligations like union contracts and pention funds, as we find in the system of bankrupsy. Only time will tell. Remember that governments are not always filled with good intentions, and new powers always can be used for bad reasons.

  43. Major-General says:

    Why am I reminded of events in Argentina. You know, the one where the government seized private retirement accounts.

  44. ThickSkinned says:

    I’m tired of having the bad parts of socialism without any perks, i.e. free healthcare. I say take over the banks before the insurance companies.

  45. u1itn0w2day says:

    If these companies are too big to fail then they are too big . In other words where was the Federal Trade Commission using anti-trust laws or where was the SEC looking at things like leverage and accounting .

    Fix the regulation and regulators you have THEN IF need be you then you go for government control .

    All this seems necessary and alright now but before you know lawyers will be using laws and powere that were ment to avoid financial catastrophe to rid themselves of political opponents to say the least .