Topics for Discussion
Now that everyone has had a day or more to digest the Obama administration’s plan for Financial Regulatory Reform, suggestions, questions, and critiques are coming from all corners. Here is a sampling of the top issues under discussion.
Systemic Risk Regulator –
Sen. Mark Warner (D-VA), who sits on the Banking Committee, objects to the plan’s expansion of the Federal Reserve’s role in managing systemic risk, believing it would concentrate too much power in one entity. Warner instead proposes the establishment of a Systemic Risk Council comprised of the Treasury, the Fed, and the other financial regulators that would, together with a permanent council staff, be able to assess and minimize risks comprehensively across the financial landscape. The House Republicans also prefer the council approach, proposing their own version – the “Market Stability and Capital Adequacy Board”-- last week.
Tier I Financial Holding Companies --
What companies will be considered Tier I Financial Holding Companies and subject to new regulation by the Fed? The Fed and Treasury are to establish the criteria, but some companies that are not currently subject to federal regulation might include General Electric, Berkshire Hathaway, State Farm Insurance, or even WalMart. Those not used to federal regulation will be given five years to ease into the new regime – the non-financial activity restrictions in the Bank Holding Company Act.
Registering Private Funds --
What will be the “modest” threshold at which advisers to hedge funds, private equity funds, and venture capital funds must register with the SEC? Congress will likely define the threshold.
Government Sponsored Enterprises (GSEs) --
Why is the administration waiting until the president’s Fiscal Year 2011 Budget, which comes out in February 2010, to make recommendations for the GSEs Fannie and Freddie? In testimony yesterday, Secretary Geithner said the administration decided other issues needed resolution first, but with GSEs at the heart of the crisis, many are criticizing this as a punt.
Consumer Financial Protection Agency --
The proposed Consumer Financial Protection Agency appears to have extensive authority – charged with regulating anything related to consumer credit, savings, collection, or payments. It even has authority to regulate communications with consumers and to ensure that consumer products are “plain vanilla” and straightforward. The American Bankers Association and Hill Republicans oppose the creation of this new agency, and even some Democrats may want to limit the proposed parameters.
There appears to be a multiplicity of conflicting responsibilities, authorities and bosses which are complicating the proposed plan.
Statutory authority provided by Congress may be severely eroded or compromised by the need to be responsive to both the Congress and the Administration. I see one large constitutional furball which allows one to "pick and choose" what regulatory actions may or must be taken.
Unless there is authority, accountability and some measure of prudent transparency, the whole system become even more susceptible to political manipulation. It seems we are simply creating another entire costly and complex bureaucracy to oversee the existing costly and complex bureaucracy
The best stance would be to create a program which imposes clear-cut duties and responsibilitie on each agency, a review process for decisions and, as a safeguard, the mandatory publishing of a report showing the status of each inquiry, investigation, prosecution -- including those which were terminated -- and the person signing off on the ultimate action decision.
I see a potential to combine the best parts of the SEC/CFTC/FTC under one roof as I do the OCC/OTS/NCUA. We either Federalize the now-private Federal Reserve as a part of the Treasury Department or restrict their activities to managing the nation's central banking function. To allow the Fed to play the control of inflation against the control of employment -- and add additional regulatory functions is almost nonsensical. The Fed's history of preventing asset class bubbles and preventing major economic disruptions is abysmal, so why continue to dig the hole deeper.
But the one thing that is needed by the government -- above all legislative fixes -- is a decent accounting system which would be mandatorily used by every source and recipient of funding. No more lost billions or unaccountable funds.
In the final analysis, we need to downsize government, not expand it in incomprehensible and unmanageable ways. Leave the czars to Russia and start cleaning up the mess.
It appears that ALL the current regulators, despite their failure, will remain in place. I can't believe this. EVERY regulator failed. EVERY. Why leave proven morons in place? I think that if the President and the Senate/House and the bureaucracy were serious about this, that they would take applications from investors like Warren Buffett, the pension plans and other large (and small)investors, create a consortium of people who can best define protection and risk (because they will be the ones "protected"), and go from there. Using the folks at the SEC (1 BILLION dollar budget), The FED (Budget unknown), the FDIC, and all other parties who could profit in one way or another, is a terrible mistake. In short, they ALL failed. Just like Rick Wagoner of GM memory, they need to give up their places, and get competent folk to replace them.