How Would Geithner's Plan Impact Wall St.?

(CBS)  Every day in a small room, just a half dozen traders can move as much as a half a billion dollars in derivatives - which are bets on whether companies will succeed or fail. These complicated investments helped to bring the financial system to its knees, reports CBS News correspondent Nancy Cordes.

"The product right now is simply not regulated," says James Cauley of IDX Capitol.

That would end under Secretary Geithner's sweeping new proposal to transform the way Wall Street does business.

"To address this will require comprehensive reform - not modest repairs at the margin, but new rules of the game," Geithner said.

So what does it mean for Wall Street?

For starters, Geithner wants to establish what some are calling a "super-regulator" - a new entity to identify and oversee large insurance companies, investment banks and other financial firms whose failure would pose a risk to the economic system. The idea is to spot trouble before it grows and spreads.

"The American people understand that too big to fail is the right size to regulate," said Rep. Al Green, D-Texas.

These firms would be required to keep enough cash on hand to weather downturns. If they didn't, they could be seized by the government, just like banks.

Rep. Donald Manzullo, R-Ill., called the proposal radical.

"You're talking about seizing private businesses," Manzullo said to Geithner. "You don't consider that to be radical?"

"No," the Treasury sectary said. "This is a prudent, carefully designed proposal to protect our financial system."

What would the new rules mean for hedge funds and their investors? Far more oversight for these private investment companies which are less regulated than other firms like mutual funds. Under Geithner's plan, hedge funds would have to register with the government so regulators can get a better grip on the size of the risks they are taking.

"This proposal takes us back to a position not where the government takes over the economy but where the government is an honest referee," said Michael Greenberger of the University of Marland.

Congress must now write up legislation that would reflect this plan, but there are still big questions to be answered here, like which government agency would take on all these new responsibilities?

[sjc_1]

Geithner's plan might actually get some of the robber barons on Wall Street to behave like real human beings...well..sort of. You can not get people that were born and raised to be white collar criminals to really behave and care about others like real people, but you might be able to change a few for the better.

[skeezix06]

Breaking them up into smaller companies is cheaper than starting an entire new division with offices, staff, supplies, and supervisors who may or may not be successful.

If they're too big to allow to fail, break them down into smaller companies and let them fail.

[sjc_1]

"If they're too big to fail, then they're too big and need to be broken up into smaller companies that can be allowed to fail."

I would say that if they are so big that any reckless act by them could bring down the economy, then they need to be watched over carefully and continuously so that they do not. We should ask why they were allowed to get so big and whether we should break them up.

[va1863]

AGREED with all that say "Too big to fail" is too big....PERIOD. This mess begins with the decades of irresponsible mergers under the guise of "We need to compete in the Global economy". That's code for "We need to maximize OUR profits and therefore our Bonuses". The problem started when a second rate MBA grad from a third rate B school concluded that the Chairman of the Board of Directors and the Corporation's President could be consolidated as a so-called Chief Executive Officer. The Boeard Director postion is the stockholders' steward to make sure management performs. Talk about CONFLICT OF INTEREST.

[tomadams99]

The government once assumed control of the infamous "Mustang Ranch" in Nevada and it went broke. What makes any of you DemoComs out there think this idiot Geithner can or should be allowed to control anything. He cannot even pay his personal taxes...without a reminder that he was cheating and stealing. Those who continue to meander after this bunch of Chicago Crooks really need to take a hard look at American History, and contemplate what it is that made us the great nation we are. All great empires eventually fall, however, it would be nice if we didn't pull ourselves down. A national implosion is an ugly thing. That is the road being paved by Obama, Geithner, Holder, and Emmanuel. I encourage all to follow the guiding words of Thomas Jefferson, for as one of the primary architects of the country, he also understood what it was going to take to keep an even keel.

[quickly101]

Let companies go into bankruptcy. Then they can reorganize and emerge leaner and more competitive. Hedge funds, derivative trading should be outlawed. No I take that back if peope are stupid enough to invest in them, then if they go under its not the taxpayers problem.

[skeezix06]

It won't impact Wall Street. It's to placate people while signaling business as usual to Wall Street.

If they're too big to fail, then they're too big and need to be broken up into smaller companies that can be allowed to fail.

[budmag06]

It is very easy to see that the war on "big business" is booming. Just watch for the catch words such as "regulation" and "corporate greed" feed the fire of public anger and for the need for "big government" intervention. Now, the socialists want increased powers to "seize" the businesses that they do not like. America is the land of freedom not, the land of big government control over businesses and our personal lives.

[philabias]

How would it affect wall street,they would love it anything to speed up our bankruptsy really excites them

[spaceatoms]

Its called a crash where everyone loses everything for 10 years; and its makes the system stable. Now the U.S. is all about a free ride, regulation is unattainable and you know it.