Geithner: Government Couldn't Prevent Another AIG
Treasury Secretary Tim Geithner, winding down his testimony before the Senate Budget Committee today, was asked a simple question by Sen. Ron Wyden (D-OR): Does the government have the legal authority to prevent another company from imploding on the same monumental level as AIG?
Geithner's simple answer was "no."
"You have to start by making sure that institutions that pose a potential risk to the system ... have strong oversight over them with sufficient conservative constraints on risk taking," Geithner explained.
AIG, he added, "was allowed to build up without any effective supervision" and permitted to "attach a very risky business to ... [a] set of healthy insurance companies."
Geithner's admission on the government's lack of legal authority to prevent a collapse on the level of AIG would seem to be a cry for congressional remodeling of the nation's financial regulatory system. The House, under Financial Services Committee Chairman Barney Frank (D-MA), and the Senate Banking Committee are getting the ball rolling on broad regulatory reform, but the process isn't expected to culminate in law until the summer -- and Geithner himself has postponed a rollout of principles for reform that was originally expected in April.
At the close of Geithner's appearance, Budget Chairman Kent Conrad (D-ND) congratulated him half-jokingly, quipping that "you've done a superb job; the markets are up over 100."
Ostensibly, that rise is unrelated to the risk of AIG Redux ...
Josh
Matt
Eric
Congress has found it very convenient to paint a target on Geithner's back. I'm not saying he shouldn't have one.
BUT . . . congress/congressional committees could have prevented the crisis. Congress could be drafting legislation to fill in the cracks that allowed Wall Street, the home loan industry and AIG to act recklessly. Geithner is a busy man. Send him legislation to comment on.
There are PLENTY of congressman and senators with TONS of staff. DO SOMETHING beside pose for pictures and drink ideology tea.
March 12, 2009 1:54 PM | Reply | Permalink
Mr Geithner,
The answer is YES. Yes, the government can prevent this from happening again. If they enforce the anti-trust laws, enforce current over-site regulations, re-instate Glass-Steagall, and pass laws to prevent solid insurance companies and banks from gambling in the market. Most importantly, prosecute violators to the fullest extent.
If companies are too big to fail, they are too big to exist; break them up or regulate them to where they do not endanger to our whole economy.
Banking, Insurance and the Markets should not be mixed. Our Grandparents learned these lessons long ago. Maybe they weren't as dumb as we thought.
If Market players need insurance, perhaps their bets are too risky to take. Require real world accounting practices, not the made up fuzzy math used today.
There were already plenty of mechanisms in place to prevent much of this current mess. Because of a lack of diligence on the part of regulators and a lack of consequences from the Judicial system, these abuses were not discouraged.
As the saying goes; 'Those who cannot remember the past are condemned to repeat it'.
March 13, 2009 8:13 AM | Reply | Permalink