Treasury Secretary Timothy Geithner speaks before the House Financial Services Committee on financial regulatory reform this morning and I am there.
9:33 It begins
9:35 Barney Frank says financial regulatory reform is not dead for 2009.
9:37 Frank says a busy schedule, including working on Fridays.
9:38 Frank says Senate counterparts tell him its full-speed ahead for them, too.
9:39 Frank talks about TBTF and how America hates it, doesn’t like that incompetence is “immunized.” “There will be death panels enacted by this Congress.”
9:41 Says Bush White House felt it had no options other than pay all creditors or none of the creditors. This will change.
9:42 Is against a “pre-ordained” list fo systemically important institutions. Like porno, “You’ll know it when you see it.”
9:44 Sees a future regulator who would tell an AIG to get out of CDS business and unwind portfolio
9:45 Ranking GOPer Spencer Bachus starts to speak. Doesn’t want to rescue firms but liquidate and resolve them. Bad mouths the Fed’s ability to identify systemic risk. Also rips into consumer finance piece.
9:46 Now we are going around the horn as other committee members give their two (minute) cents.
9:50 Jeb Hensarling (R) is going after bailouts and saying they are making economy worse, mentions jobsless recovery. He seems unaware that Frank is already going to tone down some Obama proposals like consumer finance.
9:51 Luis Guitierrez (D) dismissed the regulatory abilities of Fed and FDIC, talks up consumer finance. More capital, less leverage to stop TBTF. “Only government can stop” another Lehman.
9:55 Republicans say things need to slow down.
9:56 Geithner speaks. Says WH is only focused on “what will work.”
9:57 Hits on consumer finance first. Failures were “extensive and costly.” And to fix this we need to have national standards on credit providers.
9:58 TG: We need fundamental overhaul without hurting consumer choice.
10:00 TG: We need tools to resolve TBTF firms. We need a way to allow failure to happen with huge collateral damage to economy. “Can’t let momentum for reform fade as memory of crisis recedes.”
10:02 TG asked about BF changes to plain vanilla aspect of consumer finance proposal. TG says he is supportive of BF changes!
10:04 Doesn’t Tier One designation create a subsidy? TG says he is worried about that issue but that they will be subject to leverage limits and keep more capital and more conservative restraints on risk taking. But we need tools to intervene to be dismantled and restructured without taxpayer bearing burden. Our jobs is to make sure”system is less vulnerable.” Can’t let financial crisis “burn itself out.” Can’t “abolish the fire station.”
10:07 Maxine Waters says she is very worried about speculative use of CDS. Also seems to want to completely ban them. No just naked CDS.
10:11 TG gives a “how did that work out for you” kind of answer to the idea of keeping consumer finance authority dispersed.
10:13 TG: Don’t want to see “a bunch of bureaucrats” limit consumer choice.
10:15 Hensarling do you favor Frank death panel for troubled companies.
10:16 TG: It could be receivership or conservatorship for TBTF companies.
10:17 Mandatory standardized products for consumers not off the table but looking at other approaches, too.
10:18 JH: Wouldnt retailers like Walmart fall under new consumer authority.
10:19 Seems to say if you offer consumer credit, you play by same rules. “It’s black and white.” If you compete with banks, you fall under new agency, he seems to say. (Hensarling sees it as a new reg regime for US retailers.)
10:21 TG: Leverage is a biggie, especially for systemically important firms. Adds that “I have not had the privilege” of working on Wall Street.
10:24: TG: How best to prevent moral hazard. Cant expect the market to constrain excess leverage or wait for crisis to burn itself out.
10:35 What about proprietary trading/ toxic assets? TG: Won’t guarantee those activities. Also,new capital is coming into the system because of disclosure. More liquidity toxic assets markets. Govt. capital just now being allocated.
10:37 GOP presses TG on consumer reg consolidation. TG: Other regulators are not incompetent or unprincipled but also are protecting turf. More importantly, status quo did not work.
10:42 On derivatives and hedging. TG: Some companies need to hedge risk and also need customized products.
10:44 On credit ratings agencies. TG: We need to decrease ratings dependence and a critical part of that is that people who sell securities retain some of the risk.
10:46 TG has seen Frank note on fin reform changes but only briefly “but broad thrust looks encouraging and promising” and “nothing troubles me.”
10:51 Sherman (D) and section 1204 (resolution authority) and SuperTARP. Can we limit $ to $1 trillion in taxpayer dough or come to Congress.TG responds: I dont recognize most of your concerns and would be a mistake to harden or create an expectation that government will save you. You are fundamentally mischaracterizing the bill. (Sherman presses him on dollar limit.) I would not support proposals to put us in position we were in 2007 and 2008. Sherman: The problem with Wall Street is that Congress had to be involved.
10:57 Sherman: This creates moral hazard.
11:00 (From GOP)Will consumer energy push out smaller players, community banks and raise costs, creating bigger financial institutions. TG: This won’t increase costs for community banks. And we want to preserve capacity to use derivative markets to hedge.
11:09 Manzullo (R) Was root cause of collapse that subprime not regulated enough, people buying home they could not afford. TG: One of a number of factors.