Thursday, March 26

Opie Asks for More Power

Opie Geitner was on Capitol Hill this week asking for congress to grant Treasury and the Federal Reserve new powers to regulate troubled non-bank financial institutions that are deemed to be "too big to fail."

Their plan — if approved by Congress — will give the government new powers to seize and re-organize institutions like insurance companies, investment banks, and hedge funds whose collapse might have significant systemic effects.

Am I the only person who just doesn't like the sound of that?

14 comments:

happyathome said...

More power to the government....hmmmm what is wrong with that idea? What ever happened to accountability? Where does it end?

Melissa said...

I know I tend to be a bit on the dramatic side, but this is all starting to sound like a bad movie. I'm waiting for the alien invasion.....

Jeff said...

Why shouldn't hedge funds, investment banks and insurance companies be regulated just like commercial banks? Is it because you just don't like government? If that's the case, should the government not regulate commercial banks?

happyathome said...

When using the term "like", it is suggesting a feeling, and describing the government as pleasant is not what I would choose as a description. If the government was a business,(such as the small IGA market down the road from me)it would have closed it's doors long ago. Since when should government state what salaries and bonus monies people get paid? If a Corporation fails due to the decisions made by the business than let it fail. It should not be treated any different than the small IGA down the road from me.
Back to the question of do I "like" government? Not right now in the direction it is moving toward. Careless spending and leaving a debt that far reaches what the previous administration had left, good way to teach our kids how to manage money.
I think we forgot the purpose of our government as "We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America".
Where does it say bail out business who made bad decisions?

Jeff said...

Happyathome, what in the world are you talking about and what does it have to do with whether investment banks, hedge funds and insurance companies should be regulated?

You say you don't like bailouts (fine), but it sounds like you're against regulating the industries that exploded the current financial mess and put the entire economy at risk. What's your rationale for that? Are you against regulating commercial banks? Should the SEC and FDIC close their doors?

Melissa said...

Privately owned companies who ask for no government assistance should not have to answer to the government nor be told how much to pay their executives. If they take bailout money that is a different story, but we have to be careful that we don't turn into "Big Brother" with the people who play by the rules.

happyathome said...

Jeff,

It does have to do with investment banks, hedge funds and insurance companies. What else will the government want to regulate? If I remember correctly, FDIC was established during 1933 due to the run on the banks during the Great Depression, insuring deposts up to $250,000. Not all banks(this is a key point) are FDIC insured, only the banks that pay a premium to be a member, which is what funds FDIC. The FDIC does supervise and conduct examinations of these banks. So, with this in mind, fine if FDIC wants to get involved, but, at the will of the company, to pay that premium to be included as a member, NOT forced by the federal government. THAT is the difference. FDIC is not a cureall and the government cannot stop all future financial crisissis from occuring.
So you are telling me that by having regulations and control of these companies will insure we don't have any future financial crises? If so,that is just nieve. And would we have been worse off if we let the companies fail and maybe capitalsm occurs where other businesses make up for their failure? We will never know now.
Thank you Jeff for giving me the opportunity to express myself on a subject other than gardening or Art Class with my daughter. No one is right, it is all opinion, and how well you make your aruement. :-)

Jeff said...

happy,
Oh boy, here we go again. All commercial banks are subject to federal regulation, whether they're FDIC members or not. We regulate them not just to protect depositors, but also to protect the financial system from the risks associated with bank failures and interruptions in the flow of capital.

To the extent investment banks, insurance companies, or, to a lesser extent, hedge funds, put the financial system at risk due to excessive risk-taking (i.e., the current situation), the federal government has an interest in regulating those industries to protect the system. I don't know how many times this needs to be said, but allowing AIG or Citigroup to fail is not the same as your local IGA store failing. It's NOT about protecting these particular institutions; it's about protecting the system from massive financial collapse.

No, regulation is not a cureall (who said it was?), but it's the best tool we have to guard against financial disasters, just like any other kind of regulation aimed at protecting the public (i.e., building codes). Are all regulations good? NO, of course not, but that doesn't mean all regulations are bad either. The question is whether the regulation is effective and properly targeted.

But hey, if your belief is that businesses should be free to conduct their business in a manner that puts the whole financial system and the financial stability of millions of otherwise responsible people at risk (as long as they don't take government money), then okay.

Jeff said...

Melissa,
You say that we can't play "Big Brother" to people who play by the rules. The point is that there are no rules. What would happen if we eliminated all speed limit laws because, hey I paid for the car so I should be able to drive as fast as I want. That would be crazy and it would put a lot of innocent people and property at risk. The same goes for the financial industry. There have to be rules of the road to protect the public. I have no idea if the proposed regulations are a good idea, but just because they're regulations doesn't make them inherently bad. There's a huge segment of the financial industry operating with essentially no rules. How is that good for capitalism?

happyathome said...

If I had time, I would reply at length, but I am off to cook dinner, take care of my daughter. Jeff....have a good evening and this blog conversation is not over yet.

Melissa said...

Jeff,

I never said I disagreed with regulations, however, can you honestly defend the fact that the government having control over private businesses, compensation and anything else they dream up over the next 4 years is constitutional and for that matter, successful? That 90% tax was a JOKE....the government protected those bonuses in the stimulus package and then in an attempt to appeal to the outraged public went on a witch hunt for something they authorized to begin with. It is pure foolishness!! Along with telling a business who relies on no government money how much to pay their employees.

I was so disappointed with GW's last term and thought maybe there was a glimmer of hope that things would get better and instead it is an all out spending, liberal free for all.

Jeff said...

Melissa,
You're getting a whole bunch of different issues tangled together. What the government is proposing is to regulate these industries that have such enormous influence on the economic system in the same way they regulate commercial banks. That is a different issue from whether it is wise or not for the government to sink public money into these companies to keep them afloat. It's also a different issue from whether the AIG payouts to employees were appropriate or whether the 90% tax thing is wise. These are all separate issues. It's hard to have a discussion when we keep jumping all over the map.

Melissa said...

Jeff,

They are separate issues, but they all come back to the same points:

More government control

Increased spending that is unsustainable

Bills being pushed through with no time for most people to have a chance to read them and comprehend them thoroughly

And, I may be wrong, but has the government regulated the employee compensation for commercial banks prior to this?

Jeff said...

Melissa,
I'm not aware of any proposed regulation of employee compensation. Can you provide a link?

When you say, "more government control" are you refering to the proposed regulations? What specifically about the regulations do you disagree with? I haven't looked at them in much detail yet, so I'm open to thoughts on how they fall short or go too far. As I understand it, what Geitner presented was a general outline for introducing rules for industries that have so much influence on the economic system.

 

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