The 'New Rules of the Road'

Puppycow

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Geithner to Seek Power Over Large U.S. Hedge Funds, Derivatives

March 26 (Bloomberg) -- Treasury Secretary Timothy Geithner will ask Congress to bring large hedge funds, private- equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules.

The Treasury chief will present his proposed framework at a House Financial Services Committee hearing in Washington today. Under the new so-called rules of the road, the government would get powers to seize and wind down any financial company big enough to destabilize the banking system.

The Obama administration is counting on public anger over the taxpayer-financed rescues of American International Group Inc., Bear Stearns Cos. and other firms to help it win approval for the changes, which could be the most sweeping since the 1930s. Policy makers want to improve the oversight of the financial system now rather than wait until the crisis is over, administration officials said on condition of anonymity.
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There'd be more than just a mere devil in those details! There's going to be a whole army of little imps and servants of Beelzebub!

I don't see how they can propose any action that could be referred to as "seize and wind down".... They can try putting rules into place that would've prevented ridiculous growth through leveraged buyouts, and/or getting back to limiting banks' activities, again.

But, I can't see them floating legislation that would say, "above 1.0 gazillion dollars value - we can seize and/or dissolve your company". Firstly, the companies would spin themselves off to avoid that level of value. Secondly, I'm sure it would not survive the first test case in SCOTUS.
 
Foolmewunz said:
There'd be more than just a mere devil in those details! There's going to be a whole army of little imps and servants of Beelzebub!....Secondly, I'm sure it would not survive the first test case in SCOTUS.
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There seems to have been no indication from the White House of concern about constitutionality on any issue...correct me if I'm wrong here.
 
mhaze said:
There seems to have been no indication from the White House of concern about constitutionality on any issue...correct me if I'm wrong here.
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I'm sorry but comments like this do just make me laugh aloud (if they are intended to be serious). Think what you are saying, dozens (if not more) people, many with decades in politics, somehow just forget about the USA constitution when they are thinking up policies?

Now granted they may not agree with other people over whether there are constitutional issues and so on but that is a world away from them not having concerns about "constitutionality on any issue".
 
Darat said:
Originally Posted by mhaze
There seems to have been no indication from the White House of concern about constitutionality on any issue...correct me if I'm wrong here.

​
I'm sorry but comments like this do just make me laugh aloud .....
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seems to have been no indication

Let's have the evidence, as I put it, the "indications".Go!
 
MHaze, that's not actually the point I was making. You and Darat can have at it on that topic.

My point is that this is a lot of rhetoric. Nothing with the conditions mentioned would ever be floated seriously in Congress. Too many people would be aware that it would fail either in the Legislature or in its first legal test.

There's a lot of rhetoric being read as policy. People are still reading campaign rhetoric and looking at it as policy. Policy is what's been actually done. Appointing Geithner and the others who orchestrated the initial bailouts of AIG and the saving of his buddies' hides over at Goldman Sachs... Now that's policy.

If anyone believes that Tim Geithner has done a 180 and is now going to disassemble the uber-bankers, I'm afraid you've got a long wait coming. That's his club!
 
Foolmewunz said:
MHaze, that's not actually the point I was making. You and Darat can have at it on that topic.

My point is that this is a lot of rhetoric. Nothing with the conditions mentioned would ever be floated seriously in Congress. Too many people would be aware that it would fail either in the Legislature or in its first legal test.

There's a lot of rhetoric being read as policy. People are still reading campaign rhetoric and looking at it as policy. Policy is what's been actually done. Appointing Geithner and the others who orchestrated the initial bailouts of AIG and the saving of his buddies' hides over at Goldman Sachs... Now that's policy.

If anyone believes that Tim Geithner has done a 180 and is now going to disassemble the uber-bankers, I'm afraid you've got a long wait coming. That's his club!
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As far as I have seen, Darat has no argument or point on the matter. I understand where you are coming from and that massive rhetoric is going on. My point is simply that there is no obvious regard, in fact there is an obvious flaunting of Constitutionality (using any of the four methods of interpretation) in rhetoric from the Admin.

This is improper.
 
Foolmewunz said:
There'd be more than just a mere devil in those details! There's going to be a whole army of little imps and servants of Beelzebub!

I don't see how they can propose any action that could be referred to as "seize and wind down".... They can try putting rules into place that would've prevented ridiculous growth through leveraged buyouts, and/or getting back to limiting banks' activities, again.

But, I can't see them floating legislation that would say, "above 1.0 gazillion dollars value - we can seize and/or dissolve your company". Firstly, the companies would spin themselves off to avoid that level of value. Secondly, I'm sure it would not survive the first test case in SCOTUS.
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Well, the government does have the power to break up a monopoly (not something that the founding fathers put in the constitution, other than the interstate commerce clause). So, any company above a gazillion dollars in value would affect interstate commerce. I would imagine that the legal arguments would be similar to those that allow the Anti-Trust Act.
 
mhaze said:
My point is simply that there is no obvious regard, in fact there is an obvious flaunting of Constitutionality (using any of the four methods of interpretation) in rhetoric from the Admin.
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Evidence?
 
mhaze said:
Sheeesh. The OP?
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How would this kind of regulation differ from anti-trust regulation?

In either case, when one company gets to be too large and powerful, the government can break it up into little pieces. And companies can be fined for colluding to set prices cooperatively. If this is constitutional, why wouldn't the proposed new rules also be constitutional?
 
Puppycow,
I'm sure that's the line of thinking, but they already have Anti-Trust, don't they? Do you think they're really looking at changing the limits in some fashion? Or is there are loophole in the areas of "service" industries? (These are legit questions... Not baiting or being facetious... I'm at work and don't have the time to actually look up the letter of the laws in question.)
 
I think that what they are considering is extending the same powers they have over banks to certain other companies.
Here is a WSJ article on this

The Obama administration hopes to replace or revamp existing rules for almost every corner of financial markets, from mortgages to money-market mutual funds, from banks that are too big to fail to the "shadow" financial system that operates largely outside government control.

Many details of his plan were intentionally left blank. Mr. Geithner said he wants to work out issues with lawmakers in coming weeks. But Thursday's hearing offered a preview of the wrangling he will likely face as debate over new rules intensifies.

Key to the plan is an effort to let the government seize and deconstruct a large, failing financial company that can't currently be taken over by the FDIC. Mr. Geithner said the government needs these powers immediately and called on Congress to pass a law in this area "as quickly as you can."

"You're talking about seizing private businesses -- you don't consider that to be radical?" said Rep. Don Manzullo (R., Ill.). Rep. Spencer Bachus (R., Ala.), raised concerns that the financial components of the proposal were "too open-ended."

Richard Breeden, a former SEC chairman who now manages an investment fund, said courts, not the administration, should have the power to take over failing firms. He also was skeptical about the role of a systemic-risk regulator. "There is no single person, and no single agency, that can be omniscient about risk," he said.

SEC Chairwoman Mary Schapiro said fears that the agency is going to take a sledgehammer to hedge funds are unfounded.

"We are going to have to be very cognizant in any rule-writing process of their differences and make sure that we're being thoughtful about how we go about it," she said in an interview. "I wouldn't want anyone to walk away thinking we're going to cram hedge funds into the broker-dealer regulation model or investment-company model."

Douglas Lowenstein, president of the industry trade group Private Equity Council, said that while his members' activities don't create systemic risk, they are willing to work with Congress to ensure government gets the right tools to protect the economy "without imposing undue burdens on private-equity firms seeking to make investments that...make companies more competitive."
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So to clarify, I think that what they are talking about is failing financial companies that pose a systemic risk to the economy. IOW, companies like AIG. And, much of the details are still TBD.

ETA: I think the same logic applies here as it does with anti-trust (which is already the law of the land; that's how they killed Ma Bell). The needs of the many outweigh the needs of the few, as Spock would say. Eminent Domain is another similar example. Private property can be taken compulsorily for public uses when there is a compelling public need (although people must be compensated). In this case, we are talking about failing companies whose liabilties exceed their assets, and hence they are insolvent. Since the value of such a company is less then zero, it can be seized without compensation for the public good.
 
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Puppycow said:
I think that what they are considering is extending the same powers they have over banks to certain other companies.
Here is a WSJ article on this



So to clarify, I think that what they are talking about is failing financial companies that pose a systemic risk to the economy. IOW, companies like AIG. And, much of the details are still TBD.

ETA: I think the same logic applies here as it does with anti-trust (which is already the law of the land; that's how they killed Ma Bell). The needs of the many outweigh the needs of the few, as Spock would say. Eminent Domain is another similar example. Private property can be taken compulsorily for public uses when there is a compelling public need (although people must be compensated). In this case, we are talking about failing companies whose liabilties exceed their assets, and hence they are insolvent. Since the value of such a company is less then zero, it can be seized without compensation for the public good.
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Ever heard of due process?

Liabilities can exceed assets due to accounting methods, market fluctuations, sale of unprofitable divisions, writedowns. Debt/Asset > 1 does not imply "Seize them". Accounting statements do not show up to the minute D/A, but in arrears. It's a vast power grab.

By this logic, when US Debt/Asset > 1, do we grab the US Gov? Wait, that's now. The rules for them are different?

In conclusion, I wonder why anyone would want to give these buffoons, whose multiple errors in "managing companies" are quite obvious, a wider selection of tasty morsels.
 
so: "too big to fail" = monopoly = break 'm up before everything else breaks up
looks too reasonable to get through I fear..
like "taking lessons from the past"
 
PaKu said:
so: "too big to fail" = monopoly = break 'm up before everything else breaks up
looks too reasonable to get through I fear..
like "taking lessons from the past"
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Like keep power broken up between judicial, executive, and legislative per Constitution, therefore avoid the gov. getting Too Big to Fail.

Indeed.

like "taking lessons from the past"
 
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