Tuesday, February 2, 2010

Is Tiny Timmy Geithner On The Outs?

Plan To Fix Wall Street Does Not Include Treasury Secretary

For those of you who may have missed it over the weekend, Paul Volcker announced his plan to fix the troubled financial system in a New York Times op-ed this past weekend.  Nowhere in that plan or announcement was there any mention of Tim Geithner or a continuing role for the controversial tax-cheating Treasury Secretary.

Here are some of the elements of Volcker's plan:

-- Prevent banks from owning hedge funds and other proprietary trading vehicles (a semi-reincarnation of the Glass Steagall Act that separated commercial banking and investment banking from the 1930s to the 1990s.)  This would prevent banks from making risky investments with account and shareholder money.

-- Give the government resolution authority to step in, liquidate, or sell any firm it deems to be in trouble (including mortgage lenders, investment banks, and insurance companies) or more simply stated, a re-incarnation of the successful Resolution Trust Corporation of the 1980's which managed the orderly liquidation of banks that failed, minimizing the cost to taxpayers.

-- Make shareholders, management, and, yes, bondholders pay for any costs associated with the bank's failure, preventing Taxpayers from shouldering the burden of failed banks.  

If we do only these things, we will have eliminated the most insidious and problematic part of the status quo: Too Big To Fail.   Under Volcker's plan, big firms would be allowed to fail--in an orderly fashion, with their owners and lenders taking the hit.  In good times, they will also remain competitive in a global economy without arbitrary size constraints that put them at a disadvantage versus international banks that face no such restrictions.
One question for those concerned with the fate of Treasury Secretary Tim Geithner is why Paul Volcker is selling this plan.  Shouldn't the Treasury Secretary be doing that?

Let the Geithner Watch begin!  It's only a matter of time before the financial midget is out.

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