In a Geithner-esque fashion, the Treasury Secretary delivered a prepared statement to the Senate Banking Committee on the Obama administration’s plan for financial regulatory reform. While delivering a substantial amount of words, Timothy Geithner failed to explain how exactly the 'Alphabet Soup' the Obama administration is cooking up will fare during this economic crisis.
Acknowledging that the reform does not address everything, Timothy Geithner, clarified that the aim of this reform is to close the loopholes that allowed institutions to shop for the weakest regulator. Describing what is to come as "a sweeping set of regulatory reforms to lay the foundation for a safer, more stable financial system", the treasury secretary briefed the Senate on the changes being made to the Federal Reserve, as well as the establishment of the Financial Services Oversight Council (FSOC) and the Consumer Financial Protection Agency (CFPA). The reason for these changes and additions is, "each [regulator] was assigned to protect the safety and soundness of the individual institutions under their watch." Positing that this economic crisis may have been prevented if there was an agency that monitored the entire system.
The FSOC is designed to resolve this issue. The Council will bring together the heads of all the major federal regulatory agencies, fill the gaps in the regulatory structure where they exist, improve coordination of policy and resolution of disputes, in conjunction with having the power to gather information from any firm or market to help identify emerging risks. In other words, the FSOC will be a conglomerate of the people that were supposed to prevent the current situation that will attempt to put its fingers in a leaking dam, and will have the power to gather information to help identify emerging risks, but will not be obligated to do so. Geithner made sure to remind the Senate that the Council will not have the responsibility of supervising complex institutions, because a task of that nature requires “tremendous institutional capacity and organizational accountability.”
Rather than being liable, the USG doled this most esteemed task however to the Federal Reserve – which is as federal as Federal Express (FedEx). The Fed, which according to Senator Christopher Dodd (D., Conn.) dropped the ball on consumer protections, will now be held accountable for systemic risks to the financial system. This entrustment of power is quite baffling considering the Fed took over a decade to write a regulation on mortgages given to them by Congress. This is understandable considering the Fed is an independent bank. But, if the Fed stagnates on future pressing issues for this long, a depression may come and go before they take any action. The reform plan does move to take away the responsibility of oversight for consumer protection. Maybe its because they dropped the ball before, I don’t know.
The “ball” will be put in the hands of the rookie agency, the CFPA. This agency will serve as the primary federal agency “looking out for the interests of consumers of credit, saving, payment and other financial products.” In addition, the capacity to write rules that advocate transparency, simplicity and fairness will be yielded to the CFPA.
A mystery authority will also be created. Modeled off the FDIC, it will be in charge of handling weak or failing banks and will allow the government to resolve failing institutions in ways that place the responsibility on the owners, hopefully making them more vigilant and prudent. This effort also endeavors to extinguish the notion that the government will step in to bail out failing firms, sanguinely washing the after-taste of the billion dollar bailouts from the government’s mouth.
Geithner closes by saying; “The critical test of our reforms will be whether we make this system strong enough to withstand the stress of future recessions and the failure of large institutions. That’s our basic objective; we want to make it safe for failure.” He also adds, “We cannot afford inaction. We cannot afford a situation where we leave in place vulnerabilities that will sow the seeds for future crises.”
Overall, the reform plan sounds nice, protecting consumers, providing transparency, monitoring large institutions, and closing the gaps that were left open. Will the plan work is a different story. With the Feds track record, I would not be surprised if the large institutions that were shopping around for the most lenient regulators go straight to the Fed and do bargaining. The consumer babysitter (CFPA) could have been created as a part of the SEC, considering they investigate price fixing and heinous market actions. The gaping holes in the financial regulatory system as well as the corrupt members of the current advisory boards, will hopefully put the nation first and their pockets second, and perform the task of monitoring the financial services industry. Maybe if everyone does their job, the FSOC will appear to be more than fingers in a dam, and will parallel slabs of concrete. Regardless, the “dam” could use remodeling, but this reform should buy the government time to create more efficient solutions. In the mean time, I will be buying foreign, and keeping my money under my mattress.
-Tyler Sinclair, Editor-in-Chief.
To read Treasury Secretary Timothy Geithner's statement click hereAcknowledging that the reform does not address everything, Timothy Geithner, clarified that the aim of this reform is to close the loopholes that allowed institutions to shop for the weakest regulator. Describing what is to come as "a sweeping set of regulatory reforms to lay the foundation for a safer, more stable financial system", the treasury secretary briefed the Senate on the changes being made to the Federal Reserve, as well as the establishment of the Financial Services Oversight Council (FSOC) and the Consumer Financial Protection Agency (CFPA). The reason for these changes and additions is, "each [regulator] was assigned to protect the safety and soundness of the individual institutions under their watch." Positing that this economic crisis may have been prevented if there was an agency that monitored the entire system.
The FSOC is designed to resolve this issue. The Council will bring together the heads of all the major federal regulatory agencies, fill the gaps in the regulatory structure where they exist, improve coordination of policy and resolution of disputes, in conjunction with having the power to gather information from any firm or market to help identify emerging risks. In other words, the FSOC will be a conglomerate of the people that were supposed to prevent the current situation that will attempt to put its fingers in a leaking dam, and will have the power to gather information to help identify emerging risks, but will not be obligated to do so. Geithner made sure to remind the Senate that the Council will not have the responsibility of supervising complex institutions, because a task of that nature requires “tremendous institutional capacity and organizational accountability.”
Rather than being liable, the USG doled this most esteemed task however to the Federal Reserve – which is as federal as Federal Express (FedEx). The Fed, which according to Senator Christopher Dodd (D., Conn.) dropped the ball on consumer protections, will now be held accountable for systemic risks to the financial system. This entrustment of power is quite baffling considering the Fed took over a decade to write a regulation on mortgages given to them by Congress. This is understandable considering the Fed is an independent bank. But, if the Fed stagnates on future pressing issues for this long, a depression may come and go before they take any action. The reform plan does move to take away the responsibility of oversight for consumer protection. Maybe its because they dropped the ball before, I don’t know.
The “ball” will be put in the hands of the rookie agency, the CFPA. This agency will serve as the primary federal agency “looking out for the interests of consumers of credit, saving, payment and other financial products.” In addition, the capacity to write rules that advocate transparency, simplicity and fairness will be yielded to the CFPA.
A mystery authority will also be created. Modeled off the FDIC, it will be in charge of handling weak or failing banks and will allow the government to resolve failing institutions in ways that place the responsibility on the owners, hopefully making them more vigilant and prudent. This effort also endeavors to extinguish the notion that the government will step in to bail out failing firms, sanguinely washing the after-taste of the billion dollar bailouts from the government’s mouth.
Geithner closes by saying; “The critical test of our reforms will be whether we make this system strong enough to withstand the stress of future recessions and the failure of large institutions. That’s our basic objective; we want to make it safe for failure.” He also adds, “We cannot afford inaction. We cannot afford a situation where we leave in place vulnerabilities that will sow the seeds for future crises.”
Overall, the reform plan sounds nice, protecting consumers, providing transparency, monitoring large institutions, and closing the gaps that were left open. Will the plan work is a different story. With the Feds track record, I would not be surprised if the large institutions that were shopping around for the most lenient regulators go straight to the Fed and do bargaining. The consumer babysitter (CFPA) could have been created as a part of the SEC, considering they investigate price fixing and heinous market actions. The gaping holes in the financial regulatory system as well as the corrupt members of the current advisory boards, will hopefully put the nation first and their pockets second, and perform the task of monitoring the financial services industry. Maybe if everyone does their job, the FSOC will appear to be more than fingers in a dam, and will parallel slabs of concrete. Regardless, the “dam” could use remodeling, but this reform should buy the government time to create more efficient solutions. In the mean time, I will be buying foreign, and keeping my money under my mattress.
-Tyler Sinclair, Editor-in-Chief.
Information provided by The Wall Street Journal
