House Financial Services Committee Ranking Republican Rep. Spencer Bachus (R-Ala.) calls finance legislation sponsored by committee chair Rep. Barney Frank (D-Mass.) the most “far reaching, significant reform of our financial system since the Great Depression.” He then says however, that debate over the proposal should be “deliberative and not hurried.” (0:33)
Treasury Secretary Tim Geithner says that the finance reform legislation sponsored by House Financial Services Committee Chairman Rep. Barney Frank (D-Mass.) ensures the “orderly demise, not the survival” of financial firms that fail in the future. (0:26)
Treasury Secretary Tim Geithner says Americans are “saving more,” that “exports are expanding” and that America is “borrowing much less” now as a direct result of the $787 billion stimulus plan in the Recovery Act. (0:28)
Treasury Secretary Tim Geithner says that House Financial Services Committee Chairman Rep. Barney Frank’s (D-Mass.) bailout legislation does not provide a government guarantee for troubled finance firms. (0:17)
Treasury Secretary Tim Geithner calls the current system of financial rules “inadequate and outdated” during testimony before the House Financial Services Committee. Geithner expressed his support of Committee Chairman Rep. Barney Frank’s (D-Mass.) proposal to force wealthy corporations to pay for future bailouts of large financial firms. (0:13)
By Ravi Bhatia – Talk Radio News Service
During testimony given before the House Financial Services Committee Thursday, Treasury Secretary Timothy Geithner echoed the White House’s support for Committee Chairman Rep. Barney Frank’s (D-Mass.) proposal that would grant the Federal government the authority to take control of failing financial firms.
Frank’s legislation would create a fund paid for by businesses with over $10 billion in assets in order to bear the costs of big firms that fail. Such costs were incurred by American taxpayers in the 2008 bailouts of banking company Citigroup and General Motors. It would also create a Financial Oversight Council, led by Geithner, to set policy and stricter regulations on the firms, and mediate arguments between federal agencies.
“It’s not about redemption for the firms that make mistakes,” Geithner said. “It’s about unwinding them in a way that doesn’t cause catastrophic damage to the economy.”
The Committee will vote on the legislation as early as next week. The committee’s Ranking Republican, Spencer Bachus (R-Ala.), opposed the legislation and the speed at which it is being pushed.
“The draft legislation that was supposed to be the subject of this hearing was not received until Tuesday afternoon,” he said. “I doubt that any of today’s witnesses, with the possible exception of Secretary Geithner, have had the opportunity to fully comprehend the legislation entirely.”
“Their proposal places taxpayers first in line to bear the losses when the government invokes its resolution authority,” added Bachus.
In a statement released before her testimony on Thursday, Federal Deposit Insurance Corporation Chairman Sheila Bair said that the proposed Oversight Council lacks the authority to “effectively address systemic risks.” She recommended that the President appoint an independent chairman, subject to Senate confirmation, to fill the role Geithner would otherwise.
“A Council with regulatory agency participation will provide for an appropriate system of checks and balances to ensure that decisions reflect the various interests of public and private stakeholders,” Blair said.
Geithner said that he believes Frank’s bill will update the federal government’s financial regulatory system to match what he called, “21st century” challenges.
“The Council will have the obligation and the authority to identify any firm whose size in leverage and complexity creates a risk to the system as a whole and needs to be subject to heightened, stronger standards on leverage,” he said. “The rules in place today are inadequate and they are outdated. We’ve all seen what happens when in a crisis, the government is left with inadequate tools to respond…. That is a searing lesson of last Fall.”
Senator David Vitter (R-La.) argued that Obama’s plan to increase the power of the Fed and link some of its behavior to Treasury approval could go too far in collapsing the distinction between the Federal Reserve and the government. (0:34)
Treasury Secretary Tim Geithner said that gaps and overlaps in the regulation of the financial system must be confronted. According to Geithner, the government can only identify potential economic dangers by examining the financial system as a whole. (0:49)
By Learned Foote- Talk Radio News Service
At a hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Treasury Secretary Tim Geithner answered questions about the proposal for a “sweeping set of regulatory reforms” announced on Wednesday by President Obama.
All of the senators agreed that regulatory reform was long overdue, but several questioned the expansion of power granted to the Federal Reserve under this proposal.
Geithner said that this proposal will not address every problem of the financial system, but is instead designed to cope with the major causes of the financial crisis. Geithner argued that the regulatory system failed due to the absence of an overarching regulator guarding the system as a whole, in order to identify concentrated systemic risk to the financial system.
“Risk to our system can come from almost any quarter,” said Geithner. “We must be able to look in every corner and across the horizon for dangers, and our system was not able to do that.”
He proposed a Financial Services Oversight Council, consisting of the heads of all regulatory agencies to identify gaps in the the government supervisory framework. However, he argued that a committee should not regulate the largest, most complicated institutions. Geithner said that the Federal Reserve could best take on that regulatory role, with a “carefully designed, modest amount of additional authority.” He noted that some powers would also be taken away from the Fed under this proposal.
Senator Chris Dodd (D-Conn) said that the proposal would grant “extraordinary authority and power” to the Fed, and quoted the former Chairman of the Federal Reserve, Paul Volcker, who had previously stated that giving the Fed too many responsibilities could interfere with its ability to regulate monetary policy. Dodd also criticized the track record of the Fed in the past. Dodd noted that Congress gave authority to the Fed to regulate mortgages in 1994, and yet they “dropped the ball entirely” by failing to address the mortgage crisis in a timely manner.
The senators also expressed wishes that the Fed should remain an independent entity, and a few criticized certain provisions that would require the Fed to obtain the permission of the executive branch to lend money to institutions unregulated by the Fed, a move that some argued would politicize the policies set forth by the Fed.
Speaking to a group of reporters following the President’s speech on overhauling the nation’s financial regulatory system, Senator Chris Dodd (D-Conn.) called Obama’s plan a “step in the right direction.”
Dodd described the President’s plan, which would give the Federal Reserve the ability to monitor risky investments made by financial companies, as an effort to reinvigorate the marketplace.
Although the Senator admitted that there is “not a lot of confidence in the Fed right now,” he professed that the agency has the necessary experience to properly assume this new responsibility. Dodd added that “sitting around, hoping things will work,” should not be the President’s way of dealing with this nation’s current financial mess.
Congressman Barney Frank (D-Mass.), who joined Dodd in speaking to reporters afterwards, took a swipe at Republicans, accusing them of turning a blind eye over the years as major financial companies made risky investments.
During his speech, President Obama described his plan as a means of “leveling the playing field,” for investors, both big and small. The President stressed his desire to promote free and fair markets by closing loopholes that exist in the current financial system. Specifically, Obama suggested it was time to crack down on intricate financial instruments such as derivatives, which he described as being “so complex, it’s impossible to know their actual value.”
The President also spoke of the need to move the country away from a bubble-based economy, adding that it is the duty of his administration to prevent scenarios in which private innovation negatively impacts the marketplace.
Obama also proposed holding mortgage bankers to higher standards, requiring hedge fund advisors to register with the FCC and creating an independent Consumer Financial Protection Agency to eliminate small print and ‘gotcha’ clauses found in mortgages, credit card and other financial agreements.
The President referred to these proposals as “common sense rules.”
