More Regulation Necessary, Says Treasury Duo

By Benny Martinez
University of New Mexico/Talk Radio News Service

Treasury Secretary Timothy Geithner told the Federal Crisis Inquiry Commission Thursday that the financial crisis the United States is currently struggling to resolve was caused by high-risk practices in the finance market and the failure to regulate them.

“A principal cause of the crisis was the failure to provide legal authority to constrain risk in this parallel financial system,” Geithner said.

Contrary to the belief that the financial crisis resulted from a “shadow banking system” that included institutions like Bear Stearns and Lehman Brothers, Geithner said that “it was not hidden, [in fact], it was operating in broad daylight [and] unlike the moral hazard risk in banks, this market grew up without government insurance or any history of governmental support in a crisis.”

Former Treasury Secretary Henry Paulson joined Geithner and said that the current financial crisis cannot be attributed to only one failure in the system.

"Many mistakes were made by all market participants, including financial institutions, investors, regulators, and the rating agencies, as well as by policy makers," said Paulson.

Paulson said that regulators need to implement a stronger arsenal of tools in order to prevent another crisis. The former Treasury Secretary emphasized that lawmakers need to take precautionary measures in tight regulations.

According to Paulson, although regulation of the “shadow banking system” needs to improve, it remains a vital component in reviving America’s struggling economy.

Today at Talk Radio News

The Washington bureau will be covering the opening ceremony for the U.S. Capitol Visitor Center with Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), House Speaker Nancy Pelosi (D-Calif.), and House Minority Leader John Boehner (R-Ohio
).

The Washington bureau will also be covering remarks delivered by Treasury Secretary Henry Paulson on "U.S.-China Strategic Economic Dialogue" and a discussion on how the housing crisis began with Jim Carr of the National Community Reinvestment Coalition; and Dean Baker of the Center for Economic and Policy Research.

Paulson defends objectionable decisions

Treasury Secretary Henry Paulson said that although some of his decisions have been unpopular, they have been essential to preserving the free market system.

"Some of the things that I've been part of have been very, very objectionable decisions but they've not been difficult decisions because they are much [better] than the alternatives," said Paulson during a forum on business and policy issues sponsored by Fortune magazine.

When asked if there was any line that he would not cross in order to protect the economy, the Secretary was reluctant to answer.

"You're not going to get me to say 'never' and tell you where I'll draw the line, because if you were to ask me the question a year ago, I would have drawn the line in a different place than I actually did when I was faced with the choice."

Paulson explained that in order to combat the recent economic setbacks, there are several steps that need to be taken, such as creating more effective regulation in the financial system, establishing authorities to deal with non bank institutions, and updating infrastructure to better handle OTC derivatives. The Treasury Secretary contended that taking these actions warrants more immediate concern than finding the origins of the crisis.

"We don't want to rush to a quick conclusion...we should be focusing on getting through the night first and then when recovery is well underway we can look in the rearview mirror and really understand the nature of the problem."

Financial turmoil will not end quickly

"The turmoil will not end quickly and significant challenges remain ahead," Secretary of Treasury Henry Paulson said during a press conference to update Americans on the efforts to end the financial crisis. Paulson stated that he was working with President Bush, Congressional leaders, and both Senators Obama and McCain to find an interim chief financial officer that would "maintain continuity" with Congress and the next administration. The housing correction has been repeatedly pointed to as the root cause for the current financial crisis, and Paulson ensured Americans that "Congress was correct to take swift and bold action." Strong international partnerships must be created and maintained in order for the crisis to end, Paulson said, as he also believes that central banks around the globe are prepared to stabilize the markets.

Pelosi: The legislation may have failed, the crisis is still with us

"The Democratic side more than lived up to its side of the bargain. The legislation may have failed, the crisis is still with us," said U.S. House of Representatives Speaker Nancy Pelosi (D-Calif.) during a press conference on the rejection of the Wall Street bailout plan by House Republicans.

According to Pelosi the bill was bipartisan. Democrats had put in language about capping CEO salaries and protecting about-to-be foreclosed homeowners keep their homes, and steps were taken to provide for congressional oversight.

Pelosi said that although the majority of the House Democrats heeded Secretary of Treasury Henry Paulson and President George W. Bush's warnings regarding the need for the bailout plan, the House Republicans did not.

"We extend a hand of cooperation to the White House and to the Republicans so that we can get this issue resolved for the benefit of America's working families, to strengthen our economy and therefore strengthen our country," said Pelosi.

Chairman of the Financial Services Committee Barney Frank (D-Mass.) said that some members of the House had advised Paulson to make sure that his proposal was acceptable to both Wall Street and to the House Republicans, but that Paulson had not properly done that.

Frank said that the Bush administration should take the initiative to change the stance of the House Republicans.

The Democratic leadership disagreed with insinuations that the plan was derailed due to a partisan speech by Pelosi.

"I am appalled...We have come together on a bill to alleviate the crisis, and because somebody hurt their feelings they decide to punish the country? I would not have imputed them that degree of pettiness and hyper-sensitivity," said Frank.

He went on to joke,

"There were 12 Republican members who were ready to stand up for the economic interest of America, but not if somebody said someting? Give me those 12 people's names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are, and maybe they'd now think about the country."

The plan was supported by 60 percent of the House Democrats and 67 percent of House Republicans voted against it.