Tuesday, June 16, 2009

Sweeping Financial Reform - Advance Notice of Wednesday's Announcement

I thought the previous administration had a leaky valve everywhere. I guess all administration have those. This is the latest leak from a senior administration official outlining what Obama will announce on Wednesday.

Obama To Call For Sweeping Financial Reforms Wednesday
(6/16/2009 7:54 PM ET RTT News) [emphasis is mine, my comments in square brackets]

"President Barack Obama will lay out a sweeping series of reforms for the financial sector Wednesday.A senior administration official familiar with the plans, speaking to reporters on condition he not be named, said Tuesday that the damage caused by the recent financial crisis showed the urgent need for action.'

[Don't waste a good crisis.]

"To address those gaps, the administration will first establish a Financial Services Oversight Council, headed by the treasury department to better coordinate the actions of various regulators.

""We will, in addition, place square responsibility and require clear accountability, on the Federal Reserve to serve as the consolidated supervisor at the holding company level of all large interconnected financial firms," he said. "They will be subject … to more exacting supervisory requirements and capital standards at the holding company level.""

[So it is still about "financial" firms, although I suspect the definition is very fluid. Remember last year when SEC banned shorting the "financial" stocks? It included IBM and GE.]

[But what do you mean accountability? The Fed is not accountable to Congress or White House. Are you going to change the Fed's charter? We don't even know what the Fed has on its balance sheet. Are you going to audit the Fed?]

"He added, "We will also require, as a measure of increased transparency, registration of hedge funds and other private pools of capital and we will require the improvement of regulation of money market mutual funds."

[Bye bye dark pools.]

""All credit default swap markets and all over the counter derivatives markets will be subject to appropriate regulation," he said. "We're going to prevent those activities from posing risks to the financial system, promote transparency, prevent market manipulation, fraud and other market abuses and also ensure that OTC derivatives are not marketed inappropriately to unsophisticated parties."

[Ummm, all OTC derivative markets' size is nearly $1,000 trillion. How are you going to regulate that?]

["Unsophisticated parties" like local and state governments? Who decides what's "inappropriate"? Would it be deemed inappropriate only when the local/state governments lose money?]

"The Treasury-led financial council will have the authority under the plan to require reports from any U.S. financial firm to assess whether its activities pose a risk to the system as a whole."The Federal Reserve … will have clear authority over payments, clearings and settlement systems to ensure that no risks arise outside the system of supervision," he said.

"The administration will also call for the creation of a consumer-focused financial regulator to ensure that financial products sold to consumers are appropriate both for households and the system as a whole.

"He added, "This new entity will have broad authority to write rules. … It will be the primary enforcer of consumer protection law across the financial sector so that we can level up the playing field and have standards that apply to every participant in the system."

[And this entity will craft a financial product and force the firms to offer it. See my post.]

"The final part of the plan will be to continue to work on the world stage to make sure regulations in other countries will be stronger in a more globally interconnected world."

[So that was what "supervisory colleges" were all about.]

"Although the plan is ambitious the official said the administration hopes to have the measures passed through Congress quickly, preferably this year, the official said.

""We're going to push forward with legislation," he said. "We're going to work very, very hard to get this done right away." "


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