Geithner Makes Case For New Consumer Protection Agency

By Sam Wechsler - Talk Radio News Service

Secretary of the Treasury Timothy Geithner expressed support for the newly proposed Consumer Financial Protection Agency (CFPA) Friday at a hearing before the House Financial Services Committee. If established, the new agency would both regulate and enforce rules geared towards protecting consumers from risky financial products.

Geithner stated that “rules written by those not responsible for enforcing them are likely to be poorly designed, with insufficient feel for the needs of consumers and for the realities of the market. Rule-writing authority without enforcement authority would risk creating an agency that is too weak, dominated by those with enforcement authority.”

Oversight of the CFPA would extend to both banks and non-banking financial institutions such as mortgage brokers.

Geithner said that consumer protection failed in the years leading up to the current financial crisis in part because all federal financial regulators had higher priorities than consumer protection. Creation of the new agency would strip the Federal Reserve of consumer protection authority, and would require the Fed to receive written authority from the Secretary of the Treasury in order to exercise emergency lending authority.

Geithner stressed his desire to see innovation maintained in the financial product industry, and called for a system that produces less risk for damage. “Many of the practices of consumer lending that led to this crisis gave innovation a bad name. What [lenders] claim was innovation was often just predation,” he said.

In addition to the new CFPA, Geithner discussed a Financial Services Oversight Council that would be comprised of the heads of all major financial regulatory agencies, including the Fed and the Securities and Exchange Commission. The council would have the power to gather information from any firm or market to help identify risk, and would be responsible for recommending changes in laws and regulation that would safeguard against future crises.

Geithner hopes that Congress will pass financial reform by the end of the year. “Despite this crisis, the United States remains in many ways the most productive, the most innovative, the most resilient economy in the world. To preserve this, though, we need a more stable, more resilient system, and this requires fundamental reform,” he said.

Today at TRNS

Bureau Chief Ellen Ratner and White House Correspondent Victoria Jones will be attending a White House briefing with White House Press Secretary Robert Gibbs

The Washington Bureau will also be covering:

-Constitution Subcommittee hearing on "The Legal, Moral, and National Security Consequences of 'Prolonged Detention"

-Treasury Secretary Timothy Geithner testifies to the Senate Appropriations Committee Financial Services and General Government Subcommittee hearing on proposed budget estimates for FY2010 for the Treasury Department and the Internal Revenue Service

-Joint Economic Committee hearing on "TARP (Troubled Asset Relief Program) Accountability and Oversight: Measuring the Strength of Financial Institutions

-Defense Secretary Robert Gates' testifies to the Senate Appropriations Committee Defense Subcommittee hearing on the proposed budget estimates for FY2010 for the Defense Department

-HHS Secretary Kathleen Sebelius testifies to the Senate Appropriations Committee Labor, HHS, Education, and Related Agencies Subcommittee hearing on the proposed budget estimates for FY2010 for the Health and Human Services Department

-House Majority Leader Steny Hoyer (D-Md.) weekly pen and pad news briefing

-The Center for American Progress (CAP) discussion on "Stopping Pakistan's Militants: How to Support Pakistan's Civilian Government"

-Discussion on "The Future of Employer-Provided health care" at the Heritage Foundation

Greenspan: Regulating Banks Was A Failure

By Michael Combier-Talk Radio News Service

Billions of dollars used in the federal bailout of financial institutions was a mistake,said Former Federal Reserve Chairman Alan Greenspan today in D.C. Speaking at the American Enterprise Institute, Greenspan said that the ‘Too Big To Fail’ doctrine used by the Bush and Obama Administrations was seriously flawed.

“Earlier this decade,” said Greenspan, “it was widely expected that the next crisis would be triggered by the large and persistent US current-account deficit precipitating a collapse of the US dollar. The dollar accordingly came under heavy selling pressure” when the euro-dollar exchange rate rose starting in spring 2003.

“A financial crisis is characterized, in fact defined by an abrupt, discontinuous break in asset prices. But discontinuities are, of necessity, a surprise and that requires that the crisis be largely unanticipated by market participants. For, were it otherwise, financial arbiters would have diverted it,” said Greenspan.

In March, in light of the failure of Lehman Brothers and the rescue of AIG, Treasury Secretary Timothy Geithner proposed a plan to set a systemic regulator which would oversee the entire financial system and would prevent certain banks and nonbank financial firms to collapse financially. The plan would give the authority to the Federal Deposit Insurance Corporation the authority to bail out or liquidate failing banks or firms.

Greenspan said that “it is one thing to identify firms whose collapse might severely impair financial intermediation; it is quite another to identify institutions whose failure will lead to systemic breakdown. Systemic risk is readily identifiable. Potential systemic failure is not,” he said.

For Greenspan, the role of shareholders is important to explain the current financial crisis. “In Capitalist societies, we need shareholders to govern,” said Greenspan. “But their perspective has become increasingly that of investors, not owner-managers. When dissatisfied with corporate performance, they tend to sell their shares rather than seek to change management.”

“Of all the regulatory challenges that have emerged out of this crisis,” Greenspan views “the ‘too big to fail’ problem and its precedents, now fresh in everyone’s mind, is the most threatening to market efficiency and our economic future.”

Is The Recovery Act Really Helping?

By Celia Canon- Talk Radio News Service

Secretary of the Treasury Timothy Geithner

Treasury Secretary Timothy Geithner testified on the financial situation and on the American Recovery and Reinvestment Act today.

Geithner said that “There are important indications that our financial system is starting to heal.”

Signs that we are on the right path include ”New securities issuance has started to revive, Spreads for AAA credit card receivables asset-backed securities (ABS) have fallen about 330 basis points from there peak. There has been more issuance of consumer ABS in the past two months than in the preceding five moths combines,” said Geithner.
loans of similar types, duration and interest rates.”

Starting with the subprime mortgage crisis in 2007, “Unexpected losses experienced by major banks on mortgage-back securities set off a vicious cycle” as Geithner describes.

As a result, the government implemented the American Recovery and Reinvestment Act (ARRA) in February 17, 2009.

The act provides transparency and accountability so that taxpayers know where every dollar is going. Additionally, the ARRA “is giving 95% of working Americans a tax cut, creating or saving 3.5 million jobs, providing nearly 4 million students with a new higher education tax and helping 1.4 million Americans purchase their first home by providing $6.5 in tax credits,” said Geithner.

In terms of lending, which was significantly cut as banks lost their capital, Geithner said “The recovery program included any substantive increasing guarantees and a reduction in fees for small businesses lending programs, and we’ve seen lending under those programs increase 25% since the Recovery Act was passed.”

Sen. Christopher Dodd (D-Conn.), Chairman of the Senate Banking Committee, mitigated these arguments by saying, “I think the picture remains mixed after losing some 5.1 million jobs since the recession began.”

Geithner concurred, and added “In many parts of the country, many people don’t feel it’s getting better yet, they don’t really feel that the availability of credit is improving.”

“Treasury is continuing to look into additional metrics that gauge the markets more broadly, as well as additional economic metrics, to determine the effectiveness of the current strategy and whether additional or different steps are needed,” Geithner said.

Navigating through the Road Bumps in the Financial System

By Courtney Ann Jackson-Talk Radio News Service

We can’t let things go back to the way they were with the United States Financial System according to Treasury Secretary Timothy Geithner Monday. Geithner joined Newsweek Magazine editor, Jon Meacham, at a luncheon interview on the topic of the recession and what American’s should expect as the steps to recovery continue to be put into action.

“This is still the most challenging economic crisis that this country has seen in generations. It took a long time for these problems to build up," Geithner said. "It’s going to take time for us to work through them. We’re not going to have a steady, even process of repair, it’s going to be bumpy, still feel fragile for a while.”

Geithner expressed his sympathy for struggling Americans and said he understands why Americans are angry. He said that even as growth inevitably begins to turn positive, unemployment will continue to increase for awhile. He also said, “It’s not going to feel better for a long time for millions of Americans.”

As the administration continues to work its way through this economic crisis, Geithner believes they need to take a “fresh look” at the financial system as a whole. In terms of speed and quality of initiative that are already in progress, he said he thinks the administration is doing well.

“The American people want to see us moving to change things, not just waiting and hoping,” he said.

Meacham asked Geithner about people’s critique that the administration was being too lenient. Geither replied, “I actually think that what the President has put in place is the most aggressive approach to solving a financial crisis than we’ve seen from any serious country in a very long period of time.”

He also noted that they are doing more preventative work and referred to it as a type of insurance from a greater recession. They are working to make the system more stable and plan to release a new set of proposals in the next few weeks for reforming the oversight framework.