Vastly expanded governmental powers in the markets

I agree with the intent of trying to limit risk, however, it is absolutely terrifying to consider many more years of an executive and legislative branch of the same party, of either conservative or liberal. *shudder* ---------------------------------------------------------------- U.S. Seeks Expanded Power to Seize Firms Goal Is to Limit Risk to Broader Economy By Binyamin Appelbaum and David Cho Washington Post Staff Writers Tuesday, March 24, 2009; A01 The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document. The government at present has the authority to seize only banks. Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document. The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury’s role, are still in flux. Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers. The administration’s proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed’s other responsibilities, particularly its control over monetary policy. The government also would assume the authority to seize such firms if they totter toward failure. Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit. The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan. Geithner plans to lay out the administration’s broader strategy for overhauling financial regulation at another hearing on Thursday. The authority to seize non-bank financial firms has emerged as a priority for the administration after the failure of investment house Lehman Brothers, which was not a traditional bank, and the troubled rescue of AIG. “We’re very late in doing this, but we’ve got to move quickly to try and do this because, again, it’s a necessary thing for any government to have a broader range of tools for dealing with these kinds of things, so you can protect the economy from the kind of risks posed by institutions that get to the point where they’re systemic,” Geithner said last night at a forum held by the Wall Street Journal. The powers would parallel the government’s existing authority over banks, which are exercised by banking regulatory agencies in conjunction with the Federal Deposit Insurance Corp. Geithner has cited that structure as the model for the government’s plans.

this makes my stomach turn. whats next? auto companies? resource companies? i’m sure there’s an argument there are some auto and resource cos that pose systemic risks if in jeopardy at the wrong time. hand me my sickle and hammer comrade.

Out of control…they have gone bailout wild.

Did anyone see what happened with the porn industry bailout? I think I read that some guys from some smutty magazines asked for $5 billion (probably as a joke). Now there’s systemic risk for ya!

governments don’t turn into oppressive tyrannies by future tyrant(s) saying “I’m going to oppress and subjugate you all, and kill you if you disagree with me” they start by saying: “we offer hope and change from this current bad state of affairs - we offer you comfort”

Is this really that different from bankruptcy receivership? The only real difference is that it can happen before complete insolvency. This ought to have some kind of test for degree of systemic risk, and those tests and authorities ought to be re-evaluated at specific intervals.

I agree wholeheartedly with what they are doing now with the stimulus - it is just the future possibilities. If they are successful - I fear they will say: “see, our way is the best way, give us more power.” If they are unsuccessful - I fear they will say: “we don’t have enough authority to act in your best interests.” So, I can’t say that I am scared “now”, but rather I’m terrified of what can very possibly happen.

my original intent of this post was to convey that one party with full power is a terrifying prospect

yeah really. basically if the treasury secretary, fed chairman and president agree, they can choose to wipe out the common shareholders of any company they deem to yield ‘systemic’ risk.

This is why we need a specific test and process for defining systemic risk. And since companies are well skilled at redefining things to skirt the spirit of regulations (like calling CDSs credit default SWAPS instead of credit default INSURANCE), we need to revisit and adjust the process at specific intervals.

sublimity Wrote: ------------------------------------------------------- > governments don’t turn into oppressive tyrannies I just skimmed the porn bailout comment and read this as “trannies”… had a nice chuckle.

brianr Wrote: ------------------------------------------------------- > sublimity Wrote: > -------------------------------------------------- > ----- > > governments don’t turn into oppressive > tyrannies > > I just skimmed the porn bailout comment and read > this as “trannies”… had a nice chuckle. i bet some people on this forum are into opressive trannies…

well, oppressive trannies would definitely be less dangerous - simply since there are much of them in the world i would take oppressive trannies over tyrannies any day (not as in “taking” literally)

trannies aside, does the above really say hedge funds… how do you determine when to seize the assets of a private company? how can you seize tightly held assets. imagine the gov seized LTCM before it went down based on the risk that it ‘might’ pose a systemic risk. wouldn’t this stimulate risk taking as you can justify 1000000:1 leverage and say f it, the government will take the losses. damn, i’d so it for a day… put $1000 on the line and play with $1000000000 for a day, maybe i could make myself a few hundred million. why not take the risk.