Treasury Secretary Tim Geithner is making a credible appearance before the  Senate Banking Committee today.   Somebody has been working with Geithner on his talking points and his presentation, which is good.  And such is the intensity of the crisis that Geithner is actually being forced to address many issues in a forthright way.  Too little too late, but we’ll take what we can get.

It looks like Kudlow & Co on CNBC are doing some good work on questioning a bigger role for the Fed  in the new regulatory mix.   Senator Judd Greg (R-NH) is carrying the water for the Fed Board of Governors and supporting more power for the central bank, which is no surprise.    There is a growing plurality of  Senators that are opposed to giving the Fed more authority, but the issue is not decided.   Notice the laudatory comments for Geithner from Senator Kay Bailey Hutchison (R-TX).

It is very interesting that the G-30 via Paul Volcker has advanced the idea of ending prop-trading by the dealer banks.  If that comes to pass, then Goldman Sachs and Morgan Stanley will be trying to exit the status of  “bank” ASAP.  Trouble is, the change in the markets will make that difficult if not impossible.  The prop desk + hedge fund model at GS is ill-suited to the utility regime

I have even heard that JPM has pondered the process of becoming Chase again and spinning the JPMorgan investment business to shareholders.  Trouble is, who gets the ball in terms of the OTC derivatives book?  Maybe we take the OTC books from JPM, BAC/Merrill, etc and create a “bad bank” to wind down the rest of the CDS toxic waste pile.

Bottom line to me is that the mainstream attention to the financial crisis is becoming so intense that the Geithner/Summers/large bank political tendency is being forced into a rearguard action.  There are a number of concessions to the critics made in the current Treasury proposal.  Depending on the events that emerge in coming weeks and months, this reform situation could contain some interesting albeit still modest twists.

I will be in DC testifying before the SBC to talk about regulation of OTC derivatives on Monday: “Over-the-Counter Derivatives: Modernizing Oversight to Increase Transparency and Reduce Risks”

Category: Markets, Think Tank

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5 Responses to “Geithner Before Senate Banking Committee Re: Reg Reform — GS/MS/JPM”

  1. CNBC Sucks says:

    Chris, I like you, but you lost me when you used the word “credible” in the same sentence with “Tim Geithner”, following that up with “Kudlow”, “CNBC”, and “good work” in another single sentence.

    Is calling things something they are not the new normal?

    CNBC Sucks the Libertarian

  2. VennData says:

    The bigger you are, the less leverage you should be allowed to have. This will be a systemic check on the Too-big-to-fail types.

    The “they will all want to be too big to fail” mantra spun out this morning in the WSJ is wrong. Profitability will not be maximized as you get bigger, there will be no benefit to scale. That fixes that.

    Now it’s Congress’s turn to wave the document to the lobbyists to see how much money they can get for their collective ’10 runs.

  3. call me ahab says:

    Chris Walen Says-

    “There is a growing plurality of Senators that are opposed to giving the Fed more authority, but the issue is not decided.”

    the Fed is not innocent in the financial collapse and it can be argued that they were the instigators due to a policy that promoted atificially low interest rates and the creation of specualtion and bubbles and a false economy based on debt-

    the Fed as a super regualtor is bad idea and I hope it is defeated

  4. Moss says:

    Maybe Kudlow and Co. would be interested in taking the toxic CDS crap.
    He is so sure they can ‘earn’ their way out maybe he should put his money where his mouth is.

    BTW. I thought Geithner would be ‘gone’ by June….

  5. alfred e says:

    @Chris: You go guy. Correct.

    No more kicking the can down the road at taxpayer expense. Time to come clean. Time for the feds to come clean. And let the chips fall where they may.

    Sooner or later. Better sooner.