Congress skeptical about Obama's regulatory reform
Treasury Secretary Timothy Geithner got stumped yesterday by one of the questions posed at the Senate Banking Committee hearing on the Obama administration's proposed sweeping overhaul of the U.S. financial markets.
"An intriguing question was posed by Senator Michael Bennet, Democrat of Colorado. If the regulatory setup the administration is advocating had been in place not many months ago, would things be different now?" The New York Times noted.
Though any competent PR person would advise his or her clients against answering such broad hypothetical questions, Geithner took Bennet's bait and answered that banks and other financial institutions would have taken on less risks and consumers would have been less vulnerable to predatory practices such as subprime mortgages. Washington, the Treasury Secretary said, also would have been able to act "more swiftly to contain the damage posed by the inevitable pressures that come when firms fail."
Of course, such questions are impossible to answer, but Geithner had little choice but to try. To say members of Congress are skeptical of the Obama administration's plan to overhaul financial regulation is an understatement. Wall Street is not too keen on the idea either.
"We intend to take our case to Congress to explain why we believe adding new layers to a broken regulatory system is not the answer," said David Hirschmann, president of the Center for Capital Markets at the U.S. Chamber of Commerce, told the Los Angeles Times.
Under the Obama plan, the Federal Reserve would monitor the biggest banks. It also establishes a new agency to oversee consumer financial products and the federal government would regulate hedge funds and private equity firms for the first time. Critics, including Sen. Christopher Dodd (D-CT) and Richard Shelby (R-AL), the committee's chairman and ranking member, were skeptical about whether giving the Fed additional power was a good idea, according to Bloomberg News.
Geithner, though, attempted to refute the criticism in the most diplomatic way possible.
Speaking on PBS's "The NewsHour with Jim Lehrer", Geithner argued that the administration was going to make sure it has "much stronger shock absorbers, cushions to absorb the stress of future recessions." He said the criticisms leveled by critics of the plan were unfair though not surprising.