Hey I have an idea, why doesn't the governemt bailout and seize the fledgling news corporations who report terrible content. Then it can reorganize them and maybe call them the Ministry of Truth. U.S. Seeks Expanded Power to Seize Firms 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.
It either that or let businesses collapes and more people are laid off, because just giving these people money definatly does work when the only thing they care about is growth weath instead of accepting good profitable earnings.
The government can already seize banks to prevent systemic collapse, but they can't seize companies like AIG or Goldman (before it become a regular bank) if they pose the same problems. It seems to make sense that they should all be treated the same.
Don't know about actual siezures, but the Rolling Stone article posted in another thread talks about the government failure of regulation in the AIG situation.
This makes me very uneasy. I don't like the rhetoric about being on the road to socialism but if the Treasury gets this power and actually exercises it we are basically on the road to socialism. For as bad as many of these private companies have managed themselves I have a hard time seeing how the government can manage these companies, particularly if they are managing multiple companies in the same industry, better.
Do you have a problem with the FDIC's ability to seize banks? It's considered one of the most effective and efficient things the government does. I don't see how this is any different. It basically expands that power from banks to bank-like companies.
That's a really, really silly thing to say. This is actually part of a broader move towards consolidation of financial regulation which has been going on for some time (well before last year) and is supposed to save everybody hassle and trouble. It is supposed to make its similar to the British system - which, two years ago, everybody was touting as the ideal regulatory approach of the british FSA and the reason for the rise in London listings. Right now, we have a hodgepodge of regulators which are very difficult and costly to comply with, however they are also incomplete. This is how AIG essentially found the CDS loophole, which existed in a nether region between the SEC and traditional state insurance regulators. Using this lapse in coverage, they wrote up $2 trillion in unregulated liabilities, which you get to pay for. Under the current "non-socialist" system, we get to pay for the liabilities, but don't have the power to enforce regulations on the companies that we are stuck paying for - please tell me how that is any less a manifestation of Marxist-Leninism.
We've been on that path after Lehman's bankruptcy and the passing of TARP. I think the public outrage of TARP stems from perceptions that the government not getting enough from the deals. If that's the case, then we should go all the way, restructure the rotten apples and sell them off like an Indymac or a bad savings and loan association. It won't be easy, and the rationale behind it would run against what the government is trying to do now. Whole nationalization would be admitting that those companies are insolvent rather than illiquid. That would have its own consequences, but if it is insolvency, we'd be better off in the long run instead of propping them up and giving its shareholders and bondholders handouts.
I'm willing to concede that finance is most definately not my strong suit and am trying to learn more about this but I don't see how taking over a financial businesses is equivalent to stronger regulation. When I mention socialism it is that government will be running failing businesses. To me that is socialism in practice. That is different than regulation where the business has to follow the rules set by government but otherwise is making business decisions.
let me clarify what I mean by "Socialism" I'm not talking about us becoming a Marxist state but the practice of it where government is running businesses. Now given that we have always had some level of socialism I am worried though about the government running more and more businesses. I agree that we are at a very difficult position here where outrightly nationalizing many of these businesses might be the only way to get some value out of these failing businesses. I would hope though that we can skirt that and any moves to nationalize will be very limited. As I've said before though I don't have any better ideas but I also fear that no one including the people in government really understands what is going on with the economy.
As the lender of last resort, the government will definitely exert control over those businesses. And with the recent furor over bonuses, the political differences between partial and outright nationalism doesn't seem very wide. Geitner and Paulson seems to agree with you, but some things are out of their intended control. So my point is that the path had already been chosen, and it's too late to make a u-turn to return to the status quo 6 months ago. The public is a little behind on this, but we're stuck on partial or outright nationalization in hopes for a short term (5 years) sale. There's still a lot of hard decisions to make from there.
Maybe, I'm mistaken, but I don't think there have been any serious proposals to nationalize companies in the sense of the government running them over the long term. All of the proposals I've seen have been for the government to temporarily take over failed companies so an orderly wind down and sell off of assets can occur without collapsing an already fragile economic system.
Taking over failed businesses that act like banks, and that expose the system to risks like banks, but are technically not banks is only part of a stronger regulatory equation. Right now, certain businesses can circumvent the Depression-era regulatory system and subject the economy to the kinds of risks that the SEC, FDIC etc were designed to dampen - the same risks that caused the Great Depression. Modernizing the regulatory environment to account for these risks really has nothing to do with Karl Marx at all. We have to get away from the dangerous, and frankly, stupid, idea that unregulated markets function the most efficiently and that anybody who proposes otherwise is trying to move us into a socialist or communists direction. It's a stupid distraction. Have you ever read Marx? Regulating a financial market doesn't have much to do with most of his theories which revolved around the value of labor.
Basically, when the FDIC was created, the idea was it could take over to liquidate/fix/resolve failing banks smoothly to prevent creating a panic. Everyone is in agreement that this works extremely well. But when the regulations were created, insurance companies like AIG didn't exist. The insurance and investment companies that did exist didn't pose any kind of systemic risk - so if they failed, they were dealt with at state and local levels. So we now have a 1940's regulatory system trying to be applied to a 21st century financial system. All this is doing is updating the regulations to the modern financial structure - the purpose and authority is no different than we've had for decades. We just didn't have it covering the right companies anymore since the idea of banks and finance have changed in the interim.
Yes I've read both Das Kapital and The Communist Manifesto, although that was more than 15 years ago. I agree what we are talking about isn't Marxism which is I'm attempting to be careful with the term. What I am talking about is the practice of Socialism and not the governing system, both of which make me uneasy. I appreciate you, Major, and Invisble's Fan's explanation but what I am hearing does sound like the government not just regulating but outrightly running companies. As Gifford noted there hasn't been a proposal to do so but what Geitner is proposing sounds like the power to do so. Given the situation we are in I agree fully with you and Major that the companies on their own have done a terrible job of management and maybe having the government managing them is the only way. The government though hasn't done a very good job of management for a lot of things and I have hard time believing that given the politics, bureaucracy, corruption, and venality inherent in the US Federal government that it won't do a worse job. I mean are we going to look at AIG as being another Amtrack? As I said though I have no better ideas. My inclination would be to let many of these companies fail and direct spending on social programs but I can see how that is fraught with its own great risk. At the moment everything seems like a choice of evils.
Considering that Marx basically provided the foundation of modern socialism it's very difficult to dissassociate Marxism from what the term actually means (the transitional state prior to actual communism). As I said before, your version of "practice of socialism", and the version that is commonly misused in public discourse seems to encompass anything that is in the opposite direction from deregulation. Moving from a less regulated market to a more regulated one is not any more Socialist than advocating free trade makes one into an advocate for Anarchism. Furthermore, building in systemic safeguards to guard against companies such as AIG which allows for more rapid government intervention, rather than simply post-hoc - is not socialist either. Rather, actually incentivizing companies to better account for the risks taht they take (for which they were not in the current system) is probably the opposite of whatever pop-version of socialism that you seem to be alluding to as it's an attempt to more effectively align market incentives and shows an inherent preference for a market-aligned economy. The system we currently have forces the government to act as a post-hoc creditor, which screws everything up and allows for spectacular inefficienies. No, not at all. Did you read the remarks? Here's the relevant portion from Bernanke's testmony. AIG highlights the urgent need for new resolution procedures for systemically important nonbank financial firms. If a federal agency had had such tools on September 16, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now. and from Geithner: The lack of an appropriate regulatory regime and resolution authority for large non-bank financial institutions contributed to this crisis and will continue to constrain our capacity to address future crises. I will testify before this committee on Thursday to discuss our regulatory reform proposals – particularly those relating to mitigating systemic risk – in more detail. As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can. The Administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context. The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities, and purchase an equity interest. The U.S. government as a conservator or receiver would have additional powers to sell or transfer the assets or liabilities of the institution in question, renegotiate or repudiate the institution's contracts (including with its employees), and prevent certain financial contracts with the institution from being terminated on account of the conservatorship or receivership. This proposed legislation would fill a significant void in the current financial services regulatory structure with respect to non-bank financial institutions. Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks. That is not even close to what you seem to be suggesting.... and it is not "the practice of socialism"
What is the difference between "regulating" and "running"? You keep on saying "regulating" yet what you are describing sounds like "running"?
