Treasury Head Seeks More Regulatory Muscle

Geithner Asks Congress For New Powers Over Financial Companies That Could Imperil Economy

(CBS/ AP)  Treasury Secretary Timothy Geithner asked Congress on Tuesday for broad new powers to regulate nonbank financial companies like troubled insurer American International Group whose collapse could jeopardize the economy.

"AIG highlights broad failures of our financial system," Geithner told the House Financial Services Committee. "We must ensure that our country never faces this situation again."

At the same time, Federal Reserve Chairman Ben Bernanke revealed that he had considered filing suit to keep AIG from paying millions in executive bonuses but that his legal advisers counseled him against it.

Geithner acknowledged that the current climate of anger, including the furor over those retention bonuses, will complicate any effort by the Obama administration to get more bailout money from Congress. "We recognize it will be extraordinarily difficult," he said.

The administration sought to use that rancor to build support for its financial overhaul proposals.

Geithner joined Bernanke in calling for greater governmental authority over complicated and troubled financial companies - power they likened to the authority wielded over banks by the Federal Deposit Insurance Corporation. That includes the power to seize control of institutions, take over their bad loans and other illiquid assets and sell good ones to competitors.

AIG is a globally interconnected colossus, with 74 million customers worldwide and operations in more than 130 countries. The government decided it was simply too big to let fail.

"Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs," Bernanke told the panel.

Geithner, Bernanke and New York Fed President William C. Dudley testified in a rare joint appearance before the panel. Their testimony came a day after the Fed unveiled a new bank rescue plan under which the government would take responsibility for up to $1 trillion in sour mortgage securities with the help of private investors.

That delighted Wall Street and the Dow industrials shot up nearly 500 points. On Tuesday, Wall Street gave back some of its gains and the Dow was down just over 45 points in midday trading.

Much of Tuesday's discussion centered on ways to help the government better deal with future AIG-like companies whose failure could devastate the financial system and the drag down the economy.

"As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can," Geithner said. "The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context"

Geithner made it clear he believes the treasury secretary should be granted unprecedented power, after consultation with Federal Reserve Board officials, to take control of a major financial institution and run it. The treasury chief is an official of the administration, unlike the FDIC, which is an independent regulatory agency.

The witnesses were asked if AIG would have been treated any differently, including the payment of $165 million in bonuses earlier this month, if such powers had existed last September, when the Fed began the government bailout of the insurer.

"Quite differently. It could have been taken into receivership or conservatorship. ...The bonus issue would not have arisen," Bernanke said.

He said that contracts providing for the bonuses could have been adjusted and "we could have taken haircuts" against some of AIG's financial obligations to other companies.

AIG has become a symbol of reckless risk-taking on Wall Street. The bonuses came even as AIG reported a stunning $62 billion loss, the biggest in U.S. corporate history.

The government has bailed out AIG four times, to the tune of more than $180 billion altogether.

New York Attorney General Andrew Cuomo said Monday that 15 employees who received some of the largest bonuses from AIG have agreed to return them in full, totaling about $50 million.

Citing a "new era of corporate and individual responsibility," Cuomo said that the individuals who have agreed to return the bonuses have done the "right thing."

"It's what our country needs and demands," Cuomo said.

The House last week voted overwhelmingly to slap 90 percent taxes on the largest bonuses. Similar but more limited legislation is before the Senate.

Still, White House support for using the tax code in such a fashion has been tepid at best. And Democrats seem to be moving off the concept.

"If the money is returned, the legislation may no longer be necessary," said House Majority Leader Steny Hoyer, D-Md.

As to Geithner seeking more authority, Hoyer said he wanted to discuss with committee Chairman Barney Frank, D-Mass., "whether or not such delegation is appropriate or whether there should be greater oversight."

Geithner has been sharply criticized for his role in the AIG bailout because he helped put the deal together last September as then-president of the New York Fed, yet said he did not learn of the big bonuses until two weeks ago.

In a sharp exchange, Geithner was asked by Rep. Brad Sherman, D-Calif., whether there were other financial companies besides AIG who took taxpayer bailouts and then paid big bonuses to their executives.

"You're right, this goes well beyond AIG," said Geithner.

Sherman demanded a chart of every executive at TARP-funded companies who makes more than $1 million a year, reports CBS News correspondent Nancy Cordes.

Geither was noncommittal. Sherman told him he was trying to "hide the ball."

"I'm not going to hide the ball," Geithner said. "I'll reflect on the suggestion you made."

Bernanke said it was "highly inappropriate to pay substantial bonuses" to the employees. Bernanke said he asked that the payments be stopped but was told that they were mandated by contracts agreed to before the government seized control of AIG on September 16.

"I then asked that suit be filed to prevent the payments," he said. Bernanke said that his legal staff counseled against this action on the grounds that Connecticut law provided for substantial punitive damages in the event any such suit failed. AIG's financial products division has a base in Connecticut.

But the Connecticut attorney general disagreed and said "if the Fed had called we would have given the green light" to sue, reports Cordes.

Connecticut lawmakers also subpoenaed AIG executives who received bonuses. The Stamford Advocate reports that the AIG workers, some of whom have received death threats, are concerned about security at the State Capitol, as well as the ground rules for questioning.

The AIG bonuses created a public relations headache for President Barack Obama at a time when he was trying to gin up public and political support for his economic policies, bank-rescue plan and overhaul of the nation's regulatory structure.

Government bailouts of AIG, Citigroup Inc., Bank of America Corp. and others have put billions of taxpayers' dollars at risk over the past year and have angered the American public.

[sjc_1]

"...you need to remove private money from politics..."

The Supreme Court has ruled that private contributions are free speech. But what we can do is offset those funds with public funds. If one candidate gets lots of private funds, the opponents all get matching funds for a level playing field. It is about time the people had a lobby in government.

[noloyalisti]

What a concept. Corporations in existence for the common good. If they get our of line, the government of We the People cracks down on them. I say, we should revoke a few charters already for malfeasance. We can talk about oil and coal mining companies almost immediately. Add in pharmaceutical companies who use us as guinea pigs and gun manufacturers who are almost happy to see people being killed by their assault weapons.

[bobnjersey]

[The report, "Sold Out: How Wall Street and Washington Betrayed America," concludes that the contributions were ?aimed at undercutting federal regulation? and ultimately ?led directly to the current financial collapse.?

This is an a sad scenario ! These are the same people that were in charge of the hen house. The first order of business of Obama did was the Huge payoff raises to Congress which he gleefully signed and they all took to the bank. In the meantime they are all coming together with the strategy of just talking as long as they can until this thing dies down and then they will get back to doing business as usual. The No Change we can count on. So Sad! ]
[Posted by pepperwood2 at 10:43 PM : Mar 24, 2009 ]

this is true so far. specific proposals to revamp the regulatory structure for finance is allegedly coming.

and what everyone should come away with is not to focus too much on financial firms ... but the fact that this is likely the case in every major business sector ... where the contributions and lobbying effectively allows the industry to define the working of the legislation ... and therefore the resultant policy. the examples are many here ... and it's likely there are other industries (like insurance) that are operating in questionable ways as well.

if you really want to fix 'things' ... which would include the wholesale corruption that existed in the financial sector ... you need to remove private money from politics .... and publicly fund all elections. signifigant mods to the lobbying rules are also required to mitigate issues associated w/ people moving between govt and business ... and adversely and unfairly affecting the policy making process.

it will never happen ... the ussc has already ruled that campaign contributions are protected under the first ammendment ... which is nonsense ... and obama is now having trouble getting people to accept positions in his admin due to the restrictions he's put in place to date ... which are minor compared to what should be in place.

those that have all the control over the process are not going to let go of that easily ... and that's not you and me.

[bobnjersey]

[Do you understand the degree to which you have been brainwashed by the Left Liberal to believe that the war on terror was all for profit ?? what did we gain for going to war in Afghanistan ? huh ? did Halliburton steal their rocks and dust ?

You really need to stop with this nonsense......and remember America as a whole went to war (Both Parties).....soldiers from Both parties......Generals from Both parties.....Congress from Both parties voted for the war......It's not the REPUBLICAN's war
Posted by Joe-NY-4 at 3:27 PM : Mar 24, 2009

......Where did you get this notion that it was a "Republican war ?
Posted by Joe-NY-4 at 3:42 PM : Mar 24, 2009

at least you get it......we war together, not as individual parties.
Posted by Joe-NY-4 at 3:54 PM : Mar 24, 2009]

i can only refer you to the project for a new american century site ... and especially their letter to bill clinton in roughly 1997 or so. they all but outlined the case for a war with iraq ... long before 911 ... and long before anyone thought that iraq was a real threat to america. not to say they weren't making their neighbors nervous ... but they had nothing to do with 911 ... until of course all of these same members of the pnac ended up in some of the highest seats of power in the bush administration. then the connections were in multitude.

the case for ... and the misrepresentations forwarded in the runup to the war was completely a republican led initiative. post all the quotes you have from democrats calling saddam dangerous ... none of them made any serious case for invading iraq. after all ... according to all you guys ... liberals are puzzys who cant wage war ... so how can all their swagger mean anything if this is true?

post all the references to democrats who voted for the initial legislation ... but be sure to post their comments after the gwb admin decided to go beyond what was believed to be the authority provided by that bill.

the bush admin practiced a policy of abuse of power ... and they did it every chance they got ... one that is extremely dangerous ... and one that will be shown via history to be detrimental to the fundamental principles upon which this country was founded.

but don't tell this to any of the authoritarians and their followers ... they did nothing wrong ... all their decisions were perfectly justified ... and it's everyone else who is are the clueless ones ... espcecially liberals. dick cheney basically outlined this sentiment just in the last few days with his latest delusions.

of course ... this is just a pathetic attempt to deflect responsibility from themselves ... and onto anyone else but themselves ... just like you're trying to do here.

[curse914]

It's nice to know that having all the muscle needed over banks has kept banks out of trouble...just need more muscle to seize other companies. Running banks, insurance, and big business..oh wasn't that communist Hugo Chaves trying to do that?

Posted by krisd999-2009 at 12:26 AM : Mar 25, 2009

Sorry Mr Free Marketeer, regulation did keep the system stable. Last I check the regulations put in place during the depression worked for 70 years. During those 70 years we had a brief period where the single wage earner existed. If that is Communism, we need more of it.

[actornaught]

Posted by lami987 at 10:52 PM : Mar 24, 2009

Neocon Deregulation, especially starting with "We Hit The Jackpot" Reagan's S&L debacle, is just a green flag to massive corruption and a major weapon in the war on the middle class.

[perk235]

It's nice to know that having all the muscle needed over banks has kept banks out of trouble...just need more muscle to seize other companies. Running banks, insurance, and big business..oh wasn't that communist Hugo Chaves trying to do that?
Posted by krisd999-2009 at 12:26 AM : Mar 25, 2009
---------------------------------
Hugo Chaves is trying to own companies THAT ARE WORTH SOMETHING. In contrast, the taxpayers are owning the waste, trash, dumpsters of the excessive gambling that our fine private corporations did when the shackles of regulation were lifted.

[perk235]

CAN YOU READ THE WORDS "GOVERNMENTAL OWNERSHIP" above??
Read carefully now!
Posted by Hyptnotized_Liberals at 9:51 PM : Mar 24, 2009
---------------------------------------

Yes, governmental ownership. The taxpayers are owning the risky bets and toxic debt that private corporations racked up to the tune of $160 TRILLION dollars. That is more than all the economies of the world together.

Right now the government has been taking ownership to prevent these "too big to fail" companies from failing, but we are paying for their excesses, deregulated gambling and exhorbitent compensation.

We don't want want to pay for private companies' "efficiency" and "good judgment".

[krisd999-2009]

It's nice to know that having all the muscle needed over banks has kept banks out of trouble...just need more muscle to seize other companies. Running banks, insurance, and big business..oh wasn't that communist Hugo Chaves trying to do that?

[lami987]

I am glad government is finally willing to regulate. All industries need to be regulated. Deregulation only benefits a few.

[pepperwood2]

A group called Wall Street Watch is out with a report that finds that ?Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.7 billion in political contributions and spent another $3.4 billion on lobbyists?
The report, "Sold Out: How Wall Street and Washington Betrayed America," concludes that the contributions were ?aimed at undercutting federal regulation? and ultimately ?led directly to the current financial collapse.?

This is an a sad scenario ! These are the same people that were in charge of the hen house. The first order of business of Obama did was the Huge payoff raises to Congress which he gleefully signed and they all took to the bank. In the meantime they are all coming together with the strategy of just talking as long as they can until this thing dies down and then they will get back to doing business as usual. The No Change we can count on. So Sad!

[SnowGirlCoveredinDirt]

1: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods

CAN YOU READ THE WORDS "GOVERNMENTAL OWNERSHIP" above??

Read carefully now!
Posted by Hyptnotized_Liberals at 9:51 PM :....

Verrrryyyy carefully.. is that right next to collective or ......?

[Hyptnotized_Liberals]

socialist (that means for the social well being of the people)
posted by noloyalisti

Actually this is what it means, straight from merriam-webster online:

so·cial·ism
Function: noun
Date: 1837
1: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods

CAN YOU READ THE WORDS "GOVERNMENTAL OWNERSHIP" above??

Read carefully now!

[Hyptnotized_Liberals]

Seize the assets of the rich
posted by noloyalisti

-Does this include rich people like Barak Obama and his spiritual mentor Jeremiah Wright? Should we "seize his assets" too, Robin Hood?

What if YOU get rich someday, does this include YOU as well?

[Hyptnotized_Liberals]

The dishonorable and immoral big corporations had their chance.
posted by noloyalisti

Replace the word corporations with "Politicians" and your statement will be correct.

The problem is there are millions of idiots in this country who are still putting their faith and trust in Obama and his lying liberal croonies like Geithner despite the fact that OBAMA, GEITHNER, and DODD ALL KNEW ABOUT THE BONUSES TO BEGIN WITH, as they were laid out in the FRIGGING BILL!!!

These idiots would rather defend Obama (like the Nazis defended Hitler), than protect and defend their own country and our Constitution!!

WAKE UP AMERICA!!!

[noloyalisti]

The dishonorable and immoral big corporations had their chance. And they were exposed as wanting another fascist country. Time to stop the corporate welfare and socialism for the rich as we, the masses are devastated. Seize the assets of the rich and institute socialist (that means for the social well being of the people) controls. It works great in every other western country.

[Hyptnotized_Liberals]

Treasury Head Seeks More Regulatory Muscle


-Translation:

"Tax-cheater Geithner seeks more government control of the masses"

[SnowGirlCoveredinDirt]

Someting I coincedentally heard tonight -

?The tragedy of our day is the climate of fear in which we live. And fear breads repression. Too often sinister threats, to the bill of rights, to freedom of the mind, are concealed under the patriotic cloak of anti-communism."

[SnowGirlCoveredinDirt]

Exactly. Its a definition which doesn't have real-world examples. It's a "polar" definition, when in practice the most that's ever happened in real life has been a dilution.
Posted by slownewsday02 at 8:07 PM .......

There has been an inability to attain true communism. My guess would be that the nature of man has kept that from happening. People are simply not that evolved.

[SnowGirlCoveredinDirt]

I don't think you understand what true communism is. Actually I KNOW you don't know what it is.
Posted by slownewsday02 at 7:44 PM ...

I don't believe it has ever been attained.