Treasury Secretary Tim Geithner is on Capitol Hill (again!) today, where he will unveil the administration’s proposal for a regulatory overhaul. His official announcement hasn’t been released, but based on media reports, here’s the general list of what he’ll be proposing:
- Hedge funds and private equity funds will be brought under Federal supervision for the first time.
- A new “clearinghouse” for derivatives will be established.
- New rules for money market funds, so that we don’t have another post-Lehman situation, with the Reserve Fund breaking the buck.
- A new systemic risk regulator.
- More federal power to seize non-bank financial institutions.
Will reserve any judgment on the proposals until after we see the details, although you can expect we’ll have a lot to say once we do.
One thing we hope though is that somehow a framework emerges so that no company can get too big to fail ever again. We think that’s the key. It’s nice to talk about new federal supervision for various institutions, but as long as there are companies that must be bailed out — rather than left to fail on their own — there will always be moral hazard, and counterparties and engaging in wild, but risk-free activity, setting us up for collapse.
Obviously that’s a lot easier said than done, but it has to be the key.
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