(More) Misdirection By The Fed And Treasury

Geithner wants more power for Treasury?

Geithner, who testifies today before the House Financial Services Committee on AIG’s rescue, is expected to focus on the need for new tools for financial institutions other than banks, similar to those that the Federal Deposit Insurance Corp. has for winding down failed lenders and insuring consumer bank deposits, the official said.

We already have plenty of tools in the box folks.

Writing what amounts to insurance when you have no reserves against it has a common name: fraud.

Playing "black box" with earnings and other business features has a common name too, coined a few years ago: ENRON.

Geithner wants:

Regulators should be able to safeguard the entire financial system as well as monitor the health of specific institutions, Geithner said. This oversight should cover “all institutions and markets that could pose systemic risk” he said, according to the excerpts.

Regulators can already do this.  It is already against the law to lie in your financial statements, it is already against the law to defraud and it is already against the law to make promises (contracts) you know for a fact are mathematically impossible to keep.

We don’t need new laws, we need existing laws enforced, and we need the restrictions that were on the banking and financial system prior to the 1990s when we dismantled all of the separations and protections put back.

Specifically:

• Restore Glass-Steagall.
• Restore branch banking restrictions and CONSTRAIN the size of companies so they CANNOT pose "systemic risk."
• Bar the trading of OTC derivatives by any regulated company – period.  If regulated firms want to trade CDS or such it has to be done via exchange-listed, central-counterparty mechanisms so that nightly margin and mark-to-market can be (and is) enforced and monitored.
• Remove the "exception" for CDS from the regulatory structure; if it walks like insurance and quacks like insurance it is insurance.  Regulate it as insurance.
• Prosecute those who intentionally game the system as purveyors of fraud – which is exactly what they were – and put their butts in prison where they belong!

We are here because we willfully turned our heads from outrageous acts of deception and willful misconduct, not due to "lack of oversight capability."

Pull your heads out of your butts folks – handing more power to people who have proved they will not exercise the powers of oversight and regulation they already have is not the answer.

Bernanke, in particular, had the ability to prevent the AIG mess from happening because he already had regulatory power over the banks that were buying these CDS instruments from AIG.

He did nothing to stop them from purchasing "credit default insurance" (which is what it was, no matter what AIG and others claimed) from a company that did not have any money to pay, even though he had the unquestioned authority to do so.

The Fed, OTS and OCC (the latter two of which are Treasury both in name and in fact) willfully ignored what AIG was doing despite having the ability to stop it.

A drug pusher cannot sell drugs without drug users.  In this case Treasury and The Fed had regulatory authority over the drug users and refused to exercise it, and now claim they need "new authorities."

In fact what they need is prison terms for their willful refusal to exercise the power they already had, with Geithner being one of the worst offenders in that he sat as head of the NY Fed while the worst of these abuses occurred, head firmly and intentionally buried in the sand.