Give an inch, and they try to take it all
The Washington Post has a disturbing report this morning that talks about a plan under consideration by the Obama administration to give Treasury the unprecendented authority “to initiate the seizure of non-bank financial companies”:
The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.
The government at present has the authority to seize only banks.
Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.
The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury’s role, are still in flux.
Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.
The administration’s proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed’s other responsibilities, particularly its control over monetary policy.
The government also would assume the authority to seize such firms if they totter toward failure.
AJ Strata responds:
This is how dictatorships run. It all seems so simple, but the fact is to control anything like this requires making it simple. If we, as we do now, rely on the intentions and creativity of We The People to drive the economy and our society forward free of control, then the complex interactions of 300 million thriving humans create spontaneous an unforeseen breakthroughs. It is the churn of random innovation at work.
But to go to a command economy where a handful decide salaries, compensation, priorities you have to stifle that mass of human creativity and bring it way, way down. This is why dictatorships always fail next to free markets.
President Obama is a running disaster. He and his liberal friends are going to keep pushing the envelope of socialist control until things break (which they probably already are doing). They have no clue what they are into, or how naive they are to the challenges.
That last paragraph is a key point. They don’t even know if their existing “solutions” the the economic meltdown will “work” (the definition of which is up for debate) as it is, yet they’re already pushing for the unprecedented authority to apply their “solutions” to non-financial institutions supposedly in order to “keep them from collapsing.” The naked capitalism blog smells a rat:
Moreover, elements of this appear, to put it mildly, misguided. Insurers are regulated by states. Does the Treasury, in supplanting state authority, intend to put in place the needed supervisory apparatus? Does anyone at Treasury have the foggiest grasp of insurance accounting (which separately, is a bit of a mess)?
And AIG, poster child of insufficient regulation, was overseen at the parent level (which is where the black hole creating Financial Products unit sat) by the Office of Thrift Supervision (no joke), which is an agency of the Treasury! So the Treasury is acting like it needs more authority to prevent future AIG’s when its own agency was responsible for the doomsday machine part of AIG.
Creeping socialism, anyone? Fausta sums it up in a nutshell:
The Goal Is to Limit Risk to Broader Economy? Not so. The goal is to seize more elements of the economy.
All under the guise of “helping people.” Hmmm. Where’ve we heard that one before?
Related: George Will writes about “The Toxic Assets We Elected”