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| Economy |
| Geithner to Seek Power Over Large U.S. Hedge Funds, Derivatives |
| 2009-03-26 |
| Details sketchy, but lets see what happens to "capital formation", code for tax evasion-avoidance in the Bahamas. George will not be happy if they go down this path, so as the guy who likes a party so much that he owns one, expect nothing much to happen. Treasury Secretary Timothy Geithner will ask Congress to bring large hedge funds, private- equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules. The Treasury chief will present his proposed framework at a House Financial Services Committee hearing in Washington today. Under the new so-called rules of the road, the government would get powers to seize and wind down any financial company big enough to destabilize the banking system. The Obama administration is counting on public anger over the taxpayer-financed rescues of American International Group Inc., Bear Stearns Cos. and other firms to help it win approval for the changes, which could be the most sweeping since the 1930s. Policy makers want to improve the oversight of the financial system now rather than wait until the crisis is over, administration officials said on condition of anonymity. “We have a moment now where there is broad-based will to change things that people did not want to change in the past,” Geithner said yesterday in a speech in New York. “We want to begin the process now of trying to build consensus while people recognize and are feeling so acutely the damage caused by those basic failures in regulation.” Geithner plans to work with Congress to hammer out more details and legislation, the officials said. It’s unclear how quickly any bills could move through Congress because lawmakers are likely to have their own proposals. Unchecked Risk-Taking “Thoughtful and effective measures to prevent a repeat of the type of unchecked risk-taking that has currently put the system at risk are absolutely essential, and must be coordinated globally,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group in Hong Kong. The Treasury secretary will also call for stronger protections against financial fraud for consumers and investors, an elimination of the gaps in oversight among regulatory agencies and stepped-up coordination with international counterparts. Details on those plans will be unveiled in coming weeks, the officials said. The people also said Geithner will offer broad outlines and purposefully won’t get down to specifics, such as which agency should police credit default swaps. The swaps are a type of derivative that allows traders to bet on a company’s creditworthiness. Wrong-Way Bets AIG sold billions of dollars of the contracts with little money held in reserve in case the bets went wrong, helping seal the insurer’s downfall, Federal Reserve Chairman Ben S. Bernanke told lawmakers earlier this week. New York-based AIG also exposed the lack of federal powers to take over a non-bank financial firm and allow an orderly process for liquidating it. Geithner’s framework would set up an independent overseer for systemically vital firms. While the Bush administration had proposed that the Federal Reserve take on that authority, Geithner won’t specify which agency should have the job. Bernanke has also called for a systemic-risk regulator, and said the central bank should have some role. |
| Posted by:tipper |
| #3 Karl Denninger commented on the proposals: "Forcing derivatives (including OTC CDS) onto central-counterparty exchanges. IT IS ABOUT DAMN TIME!" -- Remember, Credit Default Swaps are still being written, mostly in secret. "You can expect the banking industry to scream bloody murder on CDS regulation. The reason is simple - this has been an absolute gold mine for them due to the intentional price obfuscation that OTC trading provides. That is, by keeping the bids and offers "to themselves" they can rob the buyers and sellers via a grossly-wide spread, pocketing the difference. Central-counterparty exchange listing will inherently narrow those spreads dramatically and this means much less income from the trading of these vehicles (as opposed to unhedged speculating, which I argue banks should not be engaged in anyway!)" He points out the Fed is not accountable to the taxpayer. But then, no governmental agency is accountable to the taxpayer in reality. Congress is only accountable to its campaign contributors. "There is no call for re-imposition of Glass-Steagall. This has to happen folks. Bluntly, depository and lending functions need to be treated as utilities. I know a lot of people would disagree, but this is how I see it, because it is the corruption of these functions that led to this mess being "systemically important."" |
| Posted by: Anguper Hupomosing9418 2009-03-26 12:10 |
| #2 How about gambling with your own money. No margin. No borrowing. No derivatives. Then the next time the financial savants get wiped out, they can just go home and eat a bullet w/o bothering us already poor taxpayers. BTW, the total value of derivatives written is over $500 trillion. The pigs are going to be at they taxpayer trough for a long time. |
| Posted by: ed 2009-03-26 09:36 |
| #1 or....you go back to the time when regulations prohibited banks and or their various paper fronts could even play with speculation like that. Then, of course, the banks and allied institutions couldn't gain as much in the bursts between the busts. |
| Posted by: Procopius2k 2009-03-26 08:42 |