E-mail
Print
Reporting from Washington -
A recently unveiled plan by the Obama administration and a leading House Democrat to give the government new powers to seize and dismantle large financial firms was criticized in Congress today, with some legislators faulting it for being too expansive and others for not going far enough to deal with the problem of companies deemed too big to fail.
Treasury Secretary Timothy Geithner went to Capitol Hill to pitch the proposal, which was drafted along with Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee. Despite the concerns, Frank said he hoped his committee could vote on the legislation next Wednesday.
Geithner told lawmakers the new powers were needed to prevent a repeat of last fall's economic meltdown, when the government allowed Lehman Bros. to fail and the Federal Reserve stepped in to save American International Group because there was no clear authority to take over large financial institutions and then sell off their assets as regulators now can do with banks.
"Never again should taxpayers be put in the position of having to pay for the losses of private institutions," Geithner told Frank's committee. "We need to build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy."
He and Frank unveiled a plan this week that would give the government so-called "resolution authority" that would require the management of such a seized firm be fired, their unsecured creditors take losses and shareholders potentially be wiped out. The un-recovered cost of any future government seizure of a huge financial firm would be paid by other large and medium-sized competitors, who would be assessed a tax after such a failure if money is needed. The plan also would allow regulators to impose tougher requirements on large financial firms to reduce their risk and the attractiveness of becoming so large they pose a threat to the entire economy.
"The penalty for being such an institution will be very severe," Frank said of large companies on the verge of failure. "There will be death panels enacted by Congress this year, I hope. But they will be for those large institutions who are to be put out of business, whose shareholders will be wiped out, whose executives will be fired, whose boards of directors will be replaced."
But Republicans hammered the plan as giving the government too much power to intercede into the private marketplace and spend taxpayer money.
"Their proposal places taxpayers first in line to bear the losses when the government invokes its resolution authority," said Rep. Spencer Bachus (R-Ala.). "And for those who believe that those taxpayer losses will subsequently be recouped, from surviving firms, I would direct their attention to the recent examples of GM, Chrysler, Fannie Mae, Freddie Mac and AIG and even the more recent example of GMAC, where the prospects for full taxpayer reimbursements are fanciful."
Some Democrats said the plan did not go far enough, saying the government should have the power to break up large companies and should collect money from Wall Street in advance of any such failure so it is in place to pay any taxpayer costs.
"No more American taxpayer money should be set aside in case we have the kind of tragedy and economic failure that we saw in the last couple of years," said Rep. Luis Gutierrez (D-Ill). Large financial firms "were greedy. They should pay for future insurance policy payouts. The fund should be set up just in case ... their reckless and dangerous and risky behavior raises its ugly head again."
Regulators also were split on aspects of the plan.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said the proposed Financial Services Oversight Council, which the legislation would create to monitor the system for signs of major risk, would not have enough power and independence.
But Federal Reserve Governor Daniel Tarullo said the legislation "provides a strong framework for achieving a safer, more stable financial system." The Fed would gain additional power under the plan to supervise large, systemically important firms, a move that some lawmakers criticized today given the central bank's failure to prevent the current crisis.
jim.puzzanghera@latimes.com
Treasury Secretary Timothy Geithner went to Capitol Hill to pitch the proposal, which was drafted along with Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee. Despite the concerns, Frank said he hoped his committee could vote on the legislation next Wednesday.
Geithner told lawmakers the new powers were needed to prevent a repeat of last fall's economic meltdown, when the government allowed Lehman Bros. to fail and the Federal Reserve stepped in to save American International Group because there was no clear authority to take over large financial institutions and then sell off their assets as regulators now can do with banks.
"Never again should taxpayers be put in the position of having to pay for the losses of private institutions," Geithner told Frank's committee. "We need to build a system in which individual firms, no matter how large or important, can fail without risking catastrophic damage to the economy."
He and Frank unveiled a plan this week that would give the government so-called "resolution authority" that would require the management of such a seized firm be fired, their unsecured creditors take losses and shareholders potentially be wiped out. The un-recovered cost of any future government seizure of a huge financial firm would be paid by other large and medium-sized competitors, who would be assessed a tax after such a failure if money is needed. The plan also would allow regulators to impose tougher requirements on large financial firms to reduce their risk and the attractiveness of becoming so large they pose a threat to the entire economy.
"The penalty for being such an institution will be very severe," Frank said of large companies on the verge of failure. "There will be death panels enacted by Congress this year, I hope. But they will be for those large institutions who are to be put out of business, whose shareholders will be wiped out, whose executives will be fired, whose boards of directors will be replaced."
But Republicans hammered the plan as giving the government too much power to intercede into the private marketplace and spend taxpayer money.
"Their proposal places taxpayers first in line to bear the losses when the government invokes its resolution authority," said Rep. Spencer Bachus (R-Ala.). "And for those who believe that those taxpayer losses will subsequently be recouped, from surviving firms, I would direct their attention to the recent examples of GM, Chrysler, Fannie Mae, Freddie Mac and AIG and even the more recent example of GMAC, where the prospects for full taxpayer reimbursements are fanciful."
Some Democrats said the plan did not go far enough, saying the government should have the power to break up large companies and should collect money from Wall Street in advance of any such failure so it is in place to pay any taxpayer costs.
"No more American taxpayer money should be set aside in case we have the kind of tragedy and economic failure that we saw in the last couple of years," said Rep. Luis Gutierrez (D-Ill). Large financial firms "were greedy. They should pay for future insurance policy payouts. The fund should be set up just in case ... their reckless and dangerous and risky behavior raises its ugly head again."
Regulators also were split on aspects of the plan.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., said the proposed Financial Services Oversight Council, which the legislation would create to monitor the system for signs of major risk, would not have enough power and independence.
But Federal Reserve Governor Daniel Tarullo said the legislation "provides a strong framework for achieving a safer, more stable financial system." The Fed would gain additional power under the plan to supervise large, systemically important firms, a move that some lawmakers criticized today given the central bank's failure to prevent the current crisis.
jim.puzzanghera@latimes.com
Digg
Twitter
Facebook
StumbleUpon
