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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Comments:
Why Not . pay back is a bicth. AIG Assholes
Sounds like nationalization, comrade.
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'.
A great idea, but do we really trust that idiot (and the ones that will follow in his position) with that power?
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.
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.
@m4ximusprim3: You don't actually expect the federal government to put power back in the box, do you?
@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.
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.
Rather than discuss financial policy and the politicalimplications of this proposal, isn't anyone disturbed by the size of this man's forehead?
@m4ximusprim3: Sounds a lot like what Senator Palpatine proposed, and we all know how that turned out.
That's right, 3 crappy prequels.
@SkokieGuy: That's more like a FIVEhead. Thank you ladies and gentlemen, I'm here all week.
Try the veal.
@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 ;)
@rpm773: I like this answer because if you project it out, it turns into a "pricess bride" type of situation:
AIG: But you knew I would know that you knew that we wanted our bonuses. So the clever man would have refused the bonuses, knowing that you would refuse to not give them to us!
Public: your intellect is truly dizzying.
AIG: But I'm just getting started!
@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.
@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.
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.
@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.
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.
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?
@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.
@hypnotik_jello: uhhh we are the richest and most powerful nation in the world. People risk their lives to come here.
Yea, something worked.
"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.
@Yossarian: The problem is that after you give someone a certain power, it can be reeeeally difficult to get it back.
@hypnotik_jello: What was left alone? What was deregulated? What regulations were not enforced?
Regulation did not work.
It was not left alone.
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?
@Bladefist: You think AIG being unregulated and making crazy bets with money it didn't have is called "working" ?
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.
@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.
@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.
@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.
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.
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.
@m4ximusprim3: someone give this commenter a star!
is it indicative that i've seen that movie entirely too many times if i can hear wallace shawn & cary elwes voiceovers?
@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.
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.
@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.
@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.
@conquestofbread: You don't see people clinging on to makeshift rafts to enter Canadia or Russia, do you?
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!
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?