I’m sure the Obama economic team headed up by “Turbo Tax” Tim Geithner is wishing for those heady days of last spring when the world was their oyster and they were the pearl of Washington.
The passage of the $787 billion stimulus bill seemed to be only the beginning of what the army of Keynesians who had primed the pump with enough wasteful spending to kill an elephant, believed presaged a new era in government management of the economy.
What they planned was nothing short of revolution - and not just for those greedy capitalists on Wall Street. From the smallest to the largest, financial institutions, credit card companies, and others who were involved in the all-American practice of extending credit of any kind would be enfolded in the loving arms of Geithner and his green eye shade bureaucrats.
And to help them along, a binge of new laws and regulations designed to make sure that the American consumer never had to take responsibility for their own actions, never had to worry that if they didn’t read the fine print, they would be punished for their stupidity. Not just a nanny state, but a Daddy state too, as our surrogate government fathers would make sure we spent our money well and wisely.
This was all ahead of Timothy Geithner and his economic team last spring. That, and another attempt to get at the rot that is still eating away at the balance sheets of big banks; toxic assets that still threaten to upend the entire financial system. Despite our being told by the Bush Administration that the original Toxic Asset Relief Program (TARP) would take care of the problem, nothing of the sort occurred. Instead, we got hundreds of billions pumped into, well, nobody knows where.
It seems we never required the banks getting this cash to disclose what exactly they were doing with it. They may have been spending it on parties, junkets, and expensive trinkets for their mistresses and the taxpayer would never be any the wiser.
But our intrepid Tim and his merry band of rabid regulators brushed all that aside and decided what we really need is a more expensive, more complicated TARP II to help the banks get out from under the mess they made all by themselves. It was an enormously complex plan that involved private investors buying the toxic assets while the government guaranteed a “floor” in their value. The scheme would have cost at least a trillion dollars so it’s not surprising that Congress balked, private investors turned up their nose, and the banks themselves clung to the hope that their worthless pieces of paper would magically regain their value somehow.
Once it became clear that Geithner couldn’t solve the toxic asset problem, confidence in the White House economic team took a huge hit on Capitol Hill and on Wall Street. It has caused the Treasury Secretary’s other plans to massively intrude in the private sector and over regulate the financial industry to come under much closer scrutiny.
Secretary Geithner testified before the House Financial Services Committee last week and was scolded by none other than one of the most liberal representatives in Congress, Barney Frank. The hearings were held to get an update from Mr. Geithner on his proposed new agency to regulate consumer credit - the Consumer Financial Protection Agency - as well as bizarre new regulations to make sure that if a bank or financial institution is “too big to fail,” it almost certainly will.
This whole new agency would be born to look over the shoulder of every consumer to make sure they wouldn’t be taken advantage of by shifty mortgage consultants, evil credit card companies, or apparently, your local hardware store that might let you put a hammer on lay-a-way. In his eagerness to protect us from ourselves, Geithner has invented a nightmare agency that would be involved in the smallest of transactions.
Barney Frank was having none of it as American Enterprise Institute’s Kevin Hassett reports:
Such an unprecedented expansion of the reach of government was too much for Frank, chairman of the House Financial Services Committee. In a letter to his colleagues a day before Geithner’s testimony, Frank proposed rolling back much of Obama’s planned intrusiveness.
“Merchants, retailers and other non-financial businesses will be excluded from the regulation and oversight of CFPA,” Frank wrote. “That means that merchants and retailers can continue to give their customers tabs and layaway plans without becoming subject to a new layer of regulation. Also, doctors and other businesses that bill their customers after a service is provided, including telephone, cable, and internet providers, will be excluded.”
It is extraordinary that the president’s original proposal was so broad that it elicited such a response from a member of his own party.
It is a relief to know that Geithner and his Lay-a-Way Patrol will not be running around making sure the terms you are getting to put that lawnmower aside aren’t too draconian.
But as Hassett points out, trouble is still in the offing with these new regs designed to make sure that if big banks want to gamble huge sums of money, they will have to get a suite at The Bellagio in Las Vegas and lose it just like the rest of us. It isn’t so much that they will prevent the same kind of tomfoolery that resulted in the meltdown. Rather, the idea that these banks will now be identified as “officially too big to fail” and, given the certainty that the government would back them up, they would receive a huge competitive advantage on interest rates and would probably become so big that regulatory oversight would fail anyway.
And then there’s this bizarre scenario: after promising that the big banks would be forced into stringent capital requirements to stave off another meltdown, Geithner informed the Congress that there would be no “fixed list” of blessed companies that would be considered “too big to fail.” Hassett blasts this idea:
But the promised harsher capital requirements would make it clear to the market which firms have been deemed too big to fail. And what’s to stop firms from announcing to everyone that they have such a designation? Will the Treasury Department remain silent if a bank falsely claims membership in that club?
Just as implausibly, Geithner said firms deemed systematically important will have “no guarantee of extraordinary governmental assistance in the event of financial distress.” In other words, they could be allowed to fail.
Hogwash. The administration’s designation would be seen, correctly, as a promise of a safety net.
Hassett believes that the Obama economic team has “gone off the rails.” Judging by what Geithner and his crew have planned, as well as the Treasury Secretary’s complete lack of success on a myriad of proposals, I see no reason to dispute that characterization.
Rick Moran's Bio
Rick Moran is the Chicago editor of Pajamas Media, an associate editor of American Thinker and the proprietor of the blog Rightwing Nuthouse.
Posted
09-29-2009 12:01 AM
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