At this hour, an utterly amazing exchange is taking place on Capitol Hill on an issue that is clearly the most important and fundamental issue facing the nation.
It's a brutally honest discussion between Tim Geithner, the Secretary of the Treasury, and the few members of the House Financial Services Committee who showed up for work today.
Geithner is, basically, calling out Congress for its inaction on closing loopholes that led to financial meltdown in the first place
It's a rare honest debate in which both sides are speaking frankly.
For example, Geithner was incredulous when one member of the committee suggested the "too-big-to-fail" banks should not be subject to the same regulation that smaller, community banks are.
"The important thing to recognize is -- and it's just worth going back to what it was like last fall -- without the ability for the government to step in and manage the failure of a large firm, to contain the risk of the fire spreading, we will be consigned to repeat the experience of last fall. It's a stark, simple thing. And there is no... I know of no person who has stood in my seat -- this is true of (Fed) Chairman Paulson -- in any central bank in any major country that would say the country should be run with no authority to step in and act in that case."
"They are getting into the fundamental issue of regulatory reform and that is the issue of pre-emption by the authority; do they have the right to go in and tell a bank they can't do a certain business, what is the right to take over a certain company if there's deemed to be a systemic risk?" a CNBC analyst noted. "This whole concept of prevention has been out there for, really, decades, that Congress has decided not to do because of these issues that have just been brought up."
Is that an important discussion -- the fundamental philosophical on the role of government -- for the people who were elected to Congress to hear? Not for many of them.
I count at least seven empty chairs. Even the committee chair, Rep. Barney Frank, left after his opening statement, in which he defended Congress by saying the committee has passed legislation that further regulates the banking industry. In fact, however, that legislation has not become law.
Three Minnesotans -- Rep. Michele Bachmann, Rep. Keith Ellison, and Rep. Erik Paulsen -- sit on the committee.
Thanks for the tip. Tuning in.
I always wondered what it would take for things to get real. Complete collapse seems to do the trick.
I heard some good debate on the perils of "Too Big to Fail", but in a few cases I think what they were really talking about was the problem of "Too Big to Understand". No one really has a handle on what these financial institutions are, what they do, and what they are connected to. That includes the people in the industry as well.
It's gonna be hard to write effective regulation in that vacuum.
"(Fed) Chairman Paulson???? He was the former Treasury Secretary under Bush. Bernanke is the Chairman of the Federal Reserve. Geithner said that? Yikes!
We won't have meaningful controls until members of congress:
a. Lose lots of money from their own accounts. + (and)
b. Have powerful contributors who lose lots of money and bitch about it to their reps. + (and)
c. Come to understand the visceral greed that drives risky behavior. + (and)
d. Come to understand the intentional complexity of the financial markets designed to baffle investors and enrich the thieves.
I rate the chances of this happening at 0 (zero).
Keep in mind that one can arguably go back to the Clinton Administration when portions of Glass-Steagall were repealed in the Gramm-Leach-Bliley Act of 1999, signed into law by then-President Clinton. Glass-Steagall was enacted in response to the Depression of the 1930's and was intended to prevent practices that led to the calamity at that time.
Fast forward to the last days of the 20th century and a totally different and more sophisticated financial system that would have never been dreamt of in the 1930's. Was the law outdated? Sure. Hindsight says that the cure was worse than the symptom here.
The partial repeals enacted in 1999 enabled commercial lenders to underwrite and trade mortgage-backed securities and collateralized debt obligations, among other products. Insurers also were able to get into the act as well. Arguably, this began the chain of events that would lead up to the events of 2008 and the response from Congress and President Bush at that time.
This is not all on Bush; Barney should shoulder part of the blame as well.
Wait, what? Geithner is complaining about loopholes? That sounds like self-incrimination to me.
hmmm....the problem is not closing loopholes? Maybe if we didn't open loopholes in the first place. The US govt has no business in the banking industry. Stay the hell away from it. Folk can figure out risk all by themselves. If banks, security traders cannot find a market for complicated instruments they do not get created.
It is a constant game of chicken but we all now that Washington blinks first - everytime. Pick up your gavels, your tweed coats, your rumpled hats and just walk away from the silly game congressmen. You will discover you have reformed the system without adding to your multitude of sins.