Last Week Treasury Secretary Geithner presented his Financial Regulatory Reform Plan a new scheme to oversee and regulate our too big to fail financial institutions, by doing the following:
- Bringing large nonBank financial institutions like A.I.G. under a more comprehensive system of federal regulation in conjunction with a new federal Consumer Financial Protection Agency.
- Giving the Federal Reserve more emergency lending authority (a bigger safety net to catch the Too Big To Fails in) and give the Fed a new oversight responsibility for financial market infrastructure, including securitization and over-the-counter markets.
- Better coordination of financial regulations with our international trading partners.
Many critics say Geithner's Plan doesn't go far enough by leaving the Too Big To Fails intact rather than shrinking them to a size where they can't threaten the larger economy by failing. Paul Krugman says we were sold what he calls "our supersized financial sector" as the key to America's prosperity.
Gretchen Morgonson writes for the New York Times:
Too Big to Fail, or Too Big to Handle
In fact, there’s precious little in the 88-page document about how the government will eliminate systemic risks posed by financial firms that aren’t allowed to fail because they’re simply too big or to interconnected to other important economic players here and abroad.
Rather than propose ways to shrink these companies and the risks they pose, the Geithner plan argues instead for enhanced regulatory oversight of the behemoths. This suggests the taxpayer safety net will be larger after our national financial train wreck, not smaller.
Even members of the Federal Reserve have expressed serious doubts about the effectiveness of Geithner's to reform plan protect our economy from future financial collapse.
"I do not think that intensification of traditional supervision and regulation of large financial firms will effectively address the too-big-to-fail problem," Gary H. Stern, president of the Federal Reserve Bank of Minneapolis and an authority on resolving big and troubled institutions, said last month in Congressional testimony.
In the recent New Yorker has a profile on Sheila Bair the Head of the FDIC who tried to alert the unreceptive Bush Administration about the coming financial implosion, and who now also opposes Geithner's finacial reform plan lite.
The Contrarian
The plan falls short of what Bair has recommended to rein in the too-big-to-fail menace. Several high-profile economists and public officials—including Volcker, Stiglitz, and Mervyn King, the head of the Bank of England—have argued recently that the government has to move beyond simply regulating such firms and start preventing them from getting too big to begin with. "I do think there’s such tremendous popular discontent, and rightly so, about the hundreds of billions that have had to be infused into various institutions to keep them stable and the inequities of how the smaller institutions are dealt with versus the larger institutions," she said. She added that her ideas were more "akin to Teddy Roosevelt’s trust-busting age." The day before Obama announced the plan, he told CNBC’s John Harwood, "We don’t want to tilt at windmills." But to Bair the windmills really are giants.
Which is the more important here? Keeping the Too Big To Fails hyper-lucrative for the obscenely wealthy few who control them, or the stability of the national economies that hundreds of millions of people depend on that also sustain these financial behemoths.
The Great Recession has finally given Americans an opportunity to regain our control over the levers of power in Government that have been held for far too long in Corporate hands. Our Federal Government needs to take these Wall Street Bovines by the horns and address the problem of the Too Big To Fails instead of sowing the seeds of the next financial collapse.