Network News

X My Profile
View More Activity

Geithner on the Defensive

Tim Geithner, secretary of Treasury, today faces the Senate Banking Committee (in the morning) and the House Financial Services Committee (afternoon) to defend the administration’s new regulatory reform proposals.

These hearings are important because they are an opportunity for all participants to set the tone and frame issues for the debate and legislation to come.

Geithner is obviously seeking to position himself as the reformer for whom we have all been waiting. This claim is undermined to some degree by the fact that – as former head of the New York Fed - he is very close to Wall Street. But perhaps a poacher has finally become gamekeeper?

The chairs of the respective committees, Sen. Chris Dodd (D) and Rep. Barney Frank (D), want to preserve their autonomy and make it clear that, while cooperating with the administration, they will put their own stamp on the final legislation. Dodd may push harder on consumer protection; this has been one of his themes. Frank may express concern for how smaller banks will be treated under the new regulations.

The real resistance will probably come from those on the left, the right, and in the center who are deeply suspicious of how Big Finance brought on and behaved during the recent crisis. The Joint Economic Committee held a hearing in April, for example, at which Thomas Hoenig (president of the Kansas City Fed, and from the right of the political spectrum) and Joe Stiglitz (Columbia University and Nobel Prize winner, from the left) agreed that any bank that is “too big to fail” should not be allowed to exist – the dangers to the financial system and to the taxpayer are far too serious.

But this elementary point is nowhere really addressed in the administration’s voluminous proposals. Instead, Geithner is bringing forward an encyclopedia of mini-changes, none of which add up to anything that would downsize our largest financial institutions or really change their behavior.

In fact, given all that has happened over the past two years, we have good reason to fear that large banks and other financial institutions now feel they can take risks with impunity – if something goes wrong, they know that generous bailouts will be forthcoming.

Geithner will probably be pushed by committee members on Thursday (and perhaps even by the chairs) to explain (a) how his new rules would have prevented the most recent crisis, and (b) how they will avoid damaging bubble leading to devastating bust in the foreseeable future.

At least given what we have seen so far, it appears he will have no good answer to these questions.

-- Simon Johnson

By Terri Rupar  |  June 18, 2009; 7:00 AM ET
Categories:  Banking  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: What's Wrong with Text Messaging?
Next: Much Ado About the Shadow Banking System

Comments

Good points.

One wonders who will "oversee" the new, powerful Fed. Barney Frank? Chris Dodd?

One wonders if "connected" banking institutions will get favored treatment, as we have watched Citigroup receive, based on political connections.

And one wonders if the political contributions made to Congressmen and Senators will affect that "wink and a nod" protection racket.

If Larry Summers becomes the Fed chairman after Bernanke's term is ended, one wonders if the same players from the late 19990's will game the system again.

Much to think about.

To WHOM will this new powerful Fed be accountable?

Posted by: auntmo9990 | June 18, 2009 8:13 AM | Report abuse

Good points Mr. Simon Johnson!

This brief article was both well researched AND succinct. It was balanced as well.

Posted by: Heerman532 | June 18, 2009 9:10 AM | Report abuse

Soft, no teeth regulations, just what Wall Street wants and Timmy G. will hand over on a silver platter with Obama's full support. All bought and paid for by Wall Street.

Posted by: Impeachbush99 | June 18, 2009 9:15 AM | Report abuse

Geithner, Frank and Dodd....Now those are some names we can trust and count on ! All three should be in jail.

Posted by: livefreeordie2 | June 18, 2009 9:18 AM | Report abuse

livefreeordie2, it isn't right to jail little Timmy Geithner just because he's an idiot.

Posted by: terrenceodonnell | June 18, 2009 12:33 PM | Report abuse

The Democratic Party is waging a war against the people hoping to award the Party total control over the economy and tax ploicies. This is the radical left that may well collapse the economy and turn us into Soviets.
See this article: http://www.digitaljournal.com/article/274378

Posted by: lclifton | June 18, 2009 2:28 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company