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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