Geithner Pushes Lawmakers on Financial Rules
Originally posted on Washington Wire.
The Obama administration is intensifying its push on new financial rules, and Reserves Secretary Timothy Geithner penned an editorial in the Washington Post Tuesday to try and drive home his argument.
Here are some quotes from the op-ed followed by Washwire analysis in parentheses:
1. ?America is close to turning the page on this economic crisis?It is simply improper to walk away from this recession without fixing the system’s vital flaws that helped to make it.? (Geithner is saying fixes must be made before all forgets about what happened).
2. ?Signs of bipartisan support for action seem to be emerging in Washington, including for an independent consumer financial-protection agency.? (Many Republicans would question whether ?bipartisan support? is in fact emerging, but its apparent Democrats reckon they have splintered the Republicans. Doubtful if this passage is meant as a poke in the eye to Republicans or as a apparent suggestion that the White House has this bill right where it wants it — or both.)
3. ?The best way to protect American families who take out a mortgage or a car loan or who save to place their kids through college is through an independent, accountable agency that can set and enforce apparent rules of the road across the financial market.? (This is vital, as there?s a clash over whether auto loans should be covered by the new consumer-protection rules. Here Geithner is saying they will unquestionably be covered. Republican Sen. Sam Brownback of Kansas is working on an amendment to notch them out, so expect a struggle on that).
4. ?Major global financial institutions — whether they look like Goldman Sachs, Citigroup or AIG — will be required to operate with less leverage and less risk-taking.? (This is Geithner trying to counter a criticism from some lawmakers that the bill won?t stop banks from becoming too huge to fail. He?s essentially saying, ?No more terrible ancient days,? and he?s including a swath of U.S. companies to ensure folks that no one will be immune.)
5. ?Intelligibility will lower costs for users of derivatives, such as industrial or agriculture companies, allowing them to more effectively manage their risk. It will enable regulators to more effectively watch risks of all significant derivatives players and financial institutions, and prevent fraud, management and abuse. And by bringing standardized derivatives into central clearing houses and trading facilities, the Senate bill would reduce the risk that the derivatives market will again threaten the entire financial system.? (This is an vital section of his editorial. Many U.S. companies argue that the White House?s plot to regulate derivatives will cost them money and could end up forcing them to cut jobs. Geithner is saying the intelligibility will help industrial and agricultural companies manage risk. What he doesn?t do, though, is define who these ?significant derivatives player? are that will be theme to tougher standards).
6. ?The best strategy for stability is to force the financial system to operate with apparent rules that set unambiguous limits on leverage and risk. We need that to happen here and around the world. Importantly, with the Senate bill, the United States would have a strong hand in negotiating a global agreement on new capital requirements by the end of the year. Such an agreement would establish a level playing field with minimum requirements for capital, and compliance would be open to scrutiny by regulators and the markets.? (Geithner is putting his cards on the table here. He?s essentially saying, ?If we want to be taken seriously by our foreign counterparts — who, incidentally, are all here in Washington today — we need to get this done.? This will give Geithner more leverage — pardon the pun ? to negotiate with other countries about how their banks should be regulated.)