Geithner’s Plan Is Way Too Ambitious

The biggest news today—other than AIG’s last minute rescue of it’s French bank—was clearly Tim Geithner’s Capitol Hill testimony.  The instant feedback has been decidedly mixed. Everyone agrees that we need to reform our system of financial regulation but lots of people are sceptical that Geithner’s plan is the right way to go.

Over at Scratch Pad, the new blog from the people who do public radio’s Marketplace, Scott Jagow levels a host of criticisms of Geithner’s reform agenda.

  • It’s too vague. There’s going to be a lot of turf battles between the various regulators who all want more authority and less accountability. The Federal Reserve, the SEC, the FDIC and even the OTS can be expected to fight tooth and nail. Geithner seemed to want to avoid this by simply not talking about it.
  • Centralization is dangerous. Geithner seems to be advocating some kind of super-regulator, a centralized financial agency that will cover insurance, banks and hedge funds. Lots of people think this will fall to the Fed. “But if the Fed whiffs, considering the bazillion tasks it’s already shouldering and considering its demonstrated lack of foresight, then what?” Jagow asks.
  • Globalization isn’t likely. In addition to bureaucratic centralization, Geithner also seemed to be advocating some kind of global cooperation. This could create its own dangers, including cutting down on regulatory competition and discovery of better regulations. But it also might not be very realistic to expect cooperation right now. “I understand the need for international cooperation in a global economy, but he’s going to get serious push-back from other countries on this. A deep world recession is exactly the wrong time to try and coax world leaders out of their protectionist shells,” Jagow says.


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