statism watch

This is fiscal theatre, and we’re being treated like idiots. The AIG contract bonuses never had the treasury as a signatory. If those executives got bonuses for blowing out AIG, it’s because the treasury damn well intended them to – you see, they actually wrote the loopholes in themselves. What better way to create an outcry and thus provide a pretext for this immense power grab? The government is nationalizing the entire financial system right in front of us.

Flashback: Wall Street’s Big Takeover | Bilderberg Seeks Bank Centralization Agenda | Financial ’super cop’ role for Fed

Barrie McKenna, Globe and Mail
March 25, 2009

Treasury Secretary joins with Fed chairman Bernanke, urging Congress to give the White House greater authority over non-bank companies such as AIG and Lehman that pose a threat to the financial system

WASHINGTON — The Obama administration and the U.S. Federal Reserve want sweeping new powers to seize and dismantle non-banks that threaten the financial system, authority they say would have spared the mess at American International Group Inc., Lehman Brothers Holdings Inc. and elsewhere.

Tapping into the widespread anger over multimillion-dollar bonuses paid to top AIG executives, Federal Reserve chairman Ben Bernanke and Treasury Secretary Timothy Geithner told a congressional committee yesterday that much of the grief would have been avoided if regulators had greater authority over the so-called shadow banking system, including insurance holding companies, investment banks and hedge funds.

“Because of the absence of that authority, we were left with few good options,” said Mr. Geithner.

He has been pilloried for allowing some of the same executives who caused AIG’s near-demise to pocket multimillion-dollar payouts after the insurer had received a massive government bailout.

Rather than injecting $170-billion (U.S.) of taxpayers’ money into AIG, Mr. Bernanke said the government could have stepped in and forced the New York-based insurer into receivership or conservatorship as it teetered under the weight of faltering derivatives deals.

That would have allowed regulators to protect policy holders, impose haircuts on creditors and cancel the now-infamous bonuses, he said.

“That outcome would have been far preferable to the situation we find ourselves in now,” Mr. Bernanke told the financial services committee of the House of Representatives, which is probing AIG.

While Mr. Geithner is expected to outline more details when he testifies again tomorrow before the House financial services panel, his proposal would give the government authority over non-bank financial companies similar to the Federal Deposit Insurance Corp.’s powers over banks.

“As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,” he said. “The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.”

The government could have the power to act as receiver of ailing non-bank financial companies.

“AIG highlights broad failures of our financial system,” Mr. Geithner told the committee. “We must ensure that our country never faces this situation again.”

As for AIG’s financial products division, he described it as “an unregulated entity operating in unregulated markets.”

As for what Mr. Geithner is seeking, said Stephen Gordon, an economics professor at the University of Laval in Quebec City, “we regulate banks because we won’t tolerate the systemic risk of a meltdown in banks. If non-banks can get too big to fail, then the same logic should apply.”

U.S. President Barack Obama also took up the cause of regulatory overhaul, expressing hope yesterday that “it doesn’t take too long to convince Congress” to approve new authority to oversee shaky and loosely regulated financial firms. [Ed. Note: Indeed not.]

Greater oversight of the shadow banking system is expected to be a major topic of discussion when Mr. Obama, Prime Minister Stephen Harper and other Group of 20 leaders meet in London next week at a summit on the global financial crisis.

It isn’t clear what agency would be granted the power over financial institutions, although Mr. Bernanke has suggested it should be the Fed.

The Federal Deposit Insurance Corp. now fills that role for banks. The agency has used its authority during the crisis to shut down IndyMac, Washington Mutual and a host of smaller institutions. The government also used similar powers to seize mortgage lender Fannie Mae and Freddie Mac.

House Republican leader John Boehner told reporters that the Treasury’s request for authority to shutter non-bank financial firms sounded like “an unprecedented grab of power.”

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