February 18, 2010
I shouldn’t have been shocked when I read about this. It’s just that it makes no sense at all and it’s actually scary — for a number of reasons. On Wednesday, February 17, Sewell Chan broke the story for The New York Times:
The Senate and the Obama administration are nearing agreement on forming a council of regulators, led by the Treasury secretary, to identify systemic risk to the nation’s financial system, officials said Wednesday.
They’re going to put “Turbo” Tim Geithner in charge of the council that regulates systemic risk in the banking system? Let the pushback begin! The first published reaction to this news (that I saw) came from Tom Lindmark at the iStockAnalyst.com website:
Only the Congress of the United States is capable of this sort of monumental stupidity. It appears as if the responsibility for running a newly formed council of bank regulators is going to be delegated to the Treasury Secretary.
Lindmark’s beef was not based on any personal opinion about the appointment of Tim Geithner himself to such a role. Mr. Lindmark’s opinion simply reflects his disgust at the idea of putting a political appointee at the head of such a committee:
The job of overseeing our financial system is going to be given to an individual whose primary job is implementing the political agenda of his boss — the President of the US.
Regulation of the banks and whatever else gets thrown into the mix is now going to be driven by politicians who have little or no interest in a safe and sound banking system. As we know too well, their primary interest is the perpetuation and enhancement of their own power with no regard for the consequences.
So there you have reason number one: Nothing personal — just bad policy.
I can’t wait to hear the responses from some of my favorite gurus from the world of finance. How about John Hussman — president of the investment advisory firm that manages the Hussman Funds? One day before the story broke concerning our new systemic risk regulator, this statement appeared in the Weekly Market Comment by Dr. Hussman:
If one is alert, it is evident that the Federal Reserve and the U.S. Treasury have disposed of the need for Congressional approval, and have engineered a de facto bailout of Fannie Mae and Freddie Mac, at public expense.
What better qualification could one have for sitting at the helm of the systemic risk council? Choose one of the guys who bypassed Congressional authority to bail out Fannie Mae and Freddie Mac with the taxpayers’ money! If Geithner is actually appointed to chair this council, you can expect an interesting response from Dr. Hussman.
Jeremy Grantham should have plenty to rant about concerning this nomination. As chairman of GMO, Mr. Grantham is responsible for managing over $107 billion of his clients’ hard-inherited money. Consider what he said about Geithner’s performance as president of the New York Fed during the months leading up to the financial crisis:
Timothy Geithner, in turn, sat in the very engine room of the USS Disaster and helped steer her onto the rocks.
Mr. Grantham should hardly be pleased to hear about our Treasury Secretary’s new role, regulating systemic risk.
The coming days should provide some entertaining diatribes along the lines of: “You’ve got to be kidding!” in response to this news. I’m looking forward to it!
Financial Reform Might Actually Happen
April 12, 2010
The long-overdue need for financial reform is finally getting some serious attention in Washington. As banking lobbyists continue to grease palms in the Senate, we are beginning to hear a number of novel ideas from some clever commentators, focused on preventing another financial crisis.
On April 9, John Mauldin published a thought-provoking essay entitled, “Reform We Can Believe In”. At one point in the piece, Mauldin considered the question that has been hanging over our heads for the past eighteen months:
Although I left out Mauldin’s suggestion to “leave the Fed alone” from that last paragraph, his essay contains a fantastic explanation of how the Federal Reserve System is organized. Best of all, Mauldin spent plenty of time reflecting on Milton Friedman’s suggestion that we program a computer to set monetary policy, instead of leaving that authority with the Fed:
Another perspective on financial reform came from Jim McTague in the April 12 edition of Barron’s. He began with the remark that both the House and Senate reform bills lack adequate measures for “efficient and intelligent policing”. Nevertheless, the solution he embraced was simple:
The proposal for a Council of Regulators has drawn a good deal of criticism, primarily because it would be chaired by the Treasury Secretary. Matthew Bishop and Michael Green, authors of The Road From Ruin, had this to say about a Council of Regulators in a recent Huffington Post piece:
Regardless of what the final product will include – one thing is becoming increasingly likely: Some semblance of financial reform legislation will eventually become enacted. It won’t be perfect but anything will be better than what we have now. (Well, almost anything . . .)