Treasury Pushes to Limit FED, FDIC Powers
Washington, D.C. (AHN) – U.S. Treasury Secretary Timothy Geithner testified before the House Financial Services Committee on Thursday, pushing for several economic reforms including a limit on the emergency powers of the Federal Reserve and the FDIC.
Congress has “made important progress over the past several weeks,” Geithner said, but now the country must move away from emergency regulations.
“During the recent financial crisis, in order to preserve the stability of the financial system, protect the savings of Americans and prevent greater economic fallout, the government was forced to step in and stand behind almost all of these firms. That cannot happen again, Geithner warned.
“No financial system can operate efficiently if financial institutions and investors assume that the government will protect them from the consequences of failure. We cannot put taxpayers in the position of paying for the losses of large private financial institutions. We must build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy,” Geithner said.
However, an “element of effective reform is limiting the emergency authorities of the FDIC and the Federal Reserve so that they are subject to appropriate checks and balances and can be used only to protect the financial system as a whole… Specifically, the Federal Reserve’s ability to extend credit to failing non-bank firms… should be eliminated. With these reforms, the Federal Reserve would preserve its valuable central bank authority to act as the lender of last resort for a financial system in crisis, but would no longer be able to come to the rescue of failing firms such as Bear Stearns or AIG,” Geithner explained.
“The FDIC should only be able to provide liquidity or guarantees to solvent non-bank financial firms with strong checks and balances. Any such use must be authorized by the Treasury and two-thirds of the boards of the Fed and the FDIC. In addition, any use must be recouped with assessments on the largest non-bank firms,” Geithner added.
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The big question is WHY the FDIC and FED is involved with insuring and guaranteeing non-bank businesses in the first place. I thought their charters were restricted to BANKS.
Help me understand how they circumvented this basic premise and charter, other than the intervention by Congress and the White House! It is time to “clean” house and get back to some basic fundamentals and quit relying on tax payers to bailout poor business practices.
Every American is not “entitled” to homeownership. It is avialable for those who have good credit, a job, and the ability to pay.
The concept of “entitlement” has carried us into this mess. Hard work, honesty and entegrity helps us to “achieve” the American Dream, but there are no guarantees or entitlements!
Use the FDIC and the FED for what it was intended. Not as a taxpayer bailout program!
There is terminology being left out of the article called “moral hazard” which is very applicable here.
Moral hazard is when an institution ventures into risky assets more than they normally would knowing that they may be “too big to fail” and thus receive a bailout.
The solution to our financial problems and which may be the only way the dollar will survive is to “let em fail”…….no more stimulus packages, no more bailouts, no more Wall Street favoritism.
The Federal Reserve is a lot of where the blame begins. They have kept the rate of interest too low for way too long and this has helped create these various bubbles (ie: stocks, bonds, real estate, even a credit and debt bubble)…..because savings became out of favor to speculation.
Now that these bubbles are bursting and ushering in economic pain, the government (Fed & Treasury) just look in amazement that it happened and feel they need to prop up the past bubbles.
Well all that’s doing is killing the dollar. You simply cannot get something for nothing.
So when I hear Geithner being quoted with a bunch of comments such as “we need to” or “we should” as a solution to our problems….maybe he’s right but actions speak louder than words. I’ll believe it when I see it. When he says we have a strong dollar policy, it’s a flat out lie. (Doesn’t he lie about taxes too?)
Uncle sugar will print money and destroy the dollar rather than risk a deflationary collapse caused by all these bursting bubbles. It’s “inflate or die”
Anyone taking notice of the money multiplier index as published by the Fed these days. It just keeps dropping and dropping as they cannot get the banks to loan enough money. So the Fed keeps it’s rate at 0.25% because even they wonder about the so called recovery.
These guys are creating one heck of a dollar carry trade. We’ll see how well they can handle that problem in the future when it unwinds. And may be we’ll also have to contend with a bailout bubble that bursts.
We’re far from being out of the woods….maybe just a year delay from the inevitable pain that you get when you abuse the system. Great Depression II is still on.
Well this is ONE step in the right direction.
“For the money spent on subsidizing the [banking] industry, the government could have bought out EVERY SINGLE OUTSTANDING MORTGAGE in the country. Plus, EVERY STUDENT LOAN and EVERYONE’S HEALTH INSURANCE. And on top of that, still have TRILLIONS of dollars left over.”
“I hope [people] will know that this banking crisis wasn’t about subprime loans gone wrong but by a banking system, still intact, that leverages, or borrows, too much on the back of consumers mortgages, loans and deposits, and that anyone who says otherwise is lying.”
“[Federal Reserve Chairman] Paul Volcker is the one guy on the Obama team calling for a separation of commercial and investment banks and rightly warning that if we don’t do that, we have set ourselves up for a GREATER fall.”
–An interview with Nomi Prins, former managing director at Goldman Sachs
Why is it that a president, (and a Democratic Congress), ostensibly for the people, and justice, and education, and health care, would allow banks to continue to profit as private, unregulated entities, while paying lip service to the unemployed, and officiating the subsidy of TRILLIONS of $’s from working taxpayers to the banks?
Geithner said, “No financial system can operate efficiently if financial institutions and investors assume that the government will protect them from the consequences of failure. We cannot [put taxpayers in the position of paying] for the losses of large private financial institutions. We must build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy.”
Are you kidding me?! Putting taxpayers in the position of paying for losses is exactly what these types have been doing. Now Geithner’s speaking out against it? Insanity! Individual firms can fail? Oh really? Then what were the billion dollar bailouts about? You did the exact opposite of what you are saying should be done. What a snake! Does Washington really think all of We The People are morons? They must! We see what you’re doing Geithner and the rest of you. You’ll not perpetrate this tyranny upon us forever. Zions Bank why don’t you be the bank who stands up on principle for our freedom? Reject stimulus and bailout funds even if it means financial disaster. You best remember the significant meaning of your name “Zions” and what it stands for. WE ARE NOT SOCIALISTS. This fiat currency system almost based completely on debt will crash down soon. Mark my words.
The Geither proclamation here must be taken in the broader context of avoiding systemic risk. In its germane aspects the recent financial debacle is attributable not to Fed’s or FDIC rescue efforts or the risks of moral hazard but rather due to the lack of insight, supervision and regulation of a free market financial community (banks, brokerage, hedge funds, investment, insurance and ratings firms) run amuck.
Before new regulations are promulgated based on moral hazard the real issues must be resolved. Unabated risk, outrageous fees and salaries and bonuses, less than arm-length transactions, off-balance sheet contingent liabilities for exotic derivatives, excessive leverage assisted trading and naked short-selling are the true nefarious elements that have so heavily burdened the taxpayer and our prosperity now and for the unforeseeable future; these elements must be constrained in the future to maintain not only our economic freedom but healthy global market relationships .
Geither would be well-advised and more prudent to address the real issue of containing the horse before illogically and boldly proclaiming what cannot be done once the horse has exited the barn door.
I think they are preparing to shut down some businesses they don’t want around. Without sounding too conspiracy theorist… Some banks and lenders were bailed out and others weren’t. Why now the change of direction? I don’t believe they saw the errors of thier ways. They usually just push through with more legislation. So who do they want to get rid of and why?
Paulson and Geithner set up the too-big-to-fail policy. Now Geithner is repudiating it. What a joke. He’s already lost credibility as a regulator. Who will put any stock in this pronouncement. Banks know that when push comes to shove, Uncle Sam will rescue them, provided they’ve greased the right political palms with campaign contributions. Voters have no power to root out this corruption because it infects both parties. Perhaps one day China and our other creditors will impose true market discipline on our investment bankers.
Could it be that Geithner and others are pulling back to avoid the proposed audits and/or abolition of the Fed?
This administration has told so many lies that no one can believe what their true motives are, or if what they are saying is true–or another lie.
Geither proposal warrants consideration. However, I do question his choice of Treasury as the heir apparent for these new powers.
While he proposes increasing Treasury scope of power, I see no mention of reshaping Treasury into an agency that can keep an eye of everything for the good of all all. For instance, where is his proposal to take Treasury out of the business of regulating Banks?
Again, I think his proposals deserve strong consideration – as a potential additional of responsibilities for the FED, whose job it really is to look out for the overall good.
Why doesn’t the U.S. Treasury start producing interest-free, gold and silver-backed United States Notes and let those compete with the fictiious debt instruments called the Federal Reserve Notes?
Blaine – Well said!
Nicole – See a good psychiatrist.
Not so many years ago, when organized crime was called ‘Gansters’, the Godfaher said, “Within a few years, we will be legit”. Now, we know what businesses they got in to!
Jay, Thanks for the thumbs down; very penetrating.
I will see a psychiatrist after I get my tax bill.
I have a friend who’s uncle has been involved in Chicago politics for a long time. The healthcare scam is really about taking several million people who are employed in some area of healthcare, and bringing them into the government. Why?? Several million new union workers paying into a multibillion dollar pension fund!
Why do you think the unions have the knife to the back of Obama and key democrats to include the public option? Where did the $ come from for his/their campaigns? The big $ came from the unions and. Did we bail out GM, no, it went right to the union pension fund. They bailed out their donors and let others fail. Wall Street.
Also with the public option, they WILL cover all the illegals in the country. Why? Around 150 million people vote. half for each party, or around 75 million on each side. If you combine the illegals and the poor who will get virtually free healthcare thanks to the working people, that could be between 25 and 45 million people. Who do you think they’ll vote for then??
As for the stimulus, it’s all going to union construction projects. How will that stimulate anything but the few union workers, the union bosses, and the union pension fund.
They are depressing the economy to maintain their “Crisis” as it’s served them well this far in the scam. Also, it’s small business that suffering while George Soros makes millions. And, small business in general are not unionized.
The democrats knew exactly what they were doing with the Community Development Act, and they’re reaping the rewards right now. And the consolidation of the banking system was one of their goals.
They are getting away with this because so few people make their voices heard. If you’re reading this, then bombard the political prostitutes with email, and talk to people to raise awareness. The unions have destroyed GM, airlines, the steel industry,and much of our manufacturing base, now they’ll destroy our economy if we let them.