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U.S. Treasury Secretary Geithner to press case for wind-down authority for large banks

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Can someone please tell me why we did not just create this authority or use the existing FDIC which seems to be world-class at winding down banks while keeping all their functions in place (Anyone remember IndyMac)?  All the authority we need to handle this operation is already in place, all it seems that might be needed is more capitalization for the FDIC to help in the transfer process of the good assets from these bad banks.

Its great how we are talking about winding down A.I.G (American International Group) in this context, when the U.S. taxpayer owns the company.  Well I guess our $180 billion dollar investment is not worth as much.  Personally I was actually against the bonus claw-back even though it was correct in the basis for the claw-back for this simple reason.  If we are now owners of the insurance company and we want to get money out of our investment, then capping bonuses would be counter-productive.   With caps in place, the top talent in the company would go to greener pastures and that would effectively be a brain-drain on the company trying to regain face.

I guess the one thing positive from this move is maybe we can quit using the cover of “too big to fail” for a reason to give bad banks, good money for making reckless choices.  I hope we actually start setting the right precedence now.  Here is the press release from Reuters on Geithners upcoming committee hearing.

U.S. Treasury Secretary Timothy Geithner will use congressional testimony this week to press his case for creating new authority to wind down big financial firms and a new systemic risk regulator.

On Tuesday, Geithner will testify before the U.S. House of Representatives Financial Services Committee on the bailout of American International Group.

“AIG is the topic (on Tuesday) and the secretary is going to spend a lot of time talking about resolution authority,” the official said.

This would allow the federal government to intervene in financial institutions with the capacity to pose broad systemic risks to the economy, such as AIG, which was rescued three times at a cost of up to $180 billion.

Geithner’s testimony on regulatory reform on Thursday, before the same panel, will focus on the need for a systemic risk regulator to help identify risks, so that situations like AIG’s problems are not allowed to develop in the future, the official said.

Written by Tally Stick

March 23rd, 2009 at 12:32 pm

Posted in Commentary

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