Geithner should be upset with himself, not regulators

According to the New York Times, Treasury Secretary Tim Geithner held a meeting last Friday with top regulatory officials (http://dealbook.blogs.nytimes.com/2009/08/04/geithner-said-to-lose-his-cool-at-regulators-meeting/?scp=2&sq=geithner&st=cse). According to the article, Mr. Geithner is upset because President Obama’s financial regulatory reform is encountering resistance among regulators, including the plan to expand the Federal Reserve’s powers. The article states that “Mr. Geithner told attendees that the administration and Congress set policy”.

To begin with, the regulatory policy established by Congress and past administrations specifically give regulators a measure of independence from Congress and the White House. For example, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) each have five commissioners, of which not more than three may be of the same political party by law. Additionally, the laws which grant the SEC and CFTC authority also grant those agencies power to establish regulations in certain areas, without prior approval from Congress or the White House. So, not only is Mr. Geithner’s assessment not compatible with the traditional U.S. law, he is assuming far too much power because the Congress HAS NOT passed President Obama’s regulatory reform measures – for which Mr. Geithner was undoubtedly the key author. And with tirades such as those, growing public mistrust with the Federal Reserve, and Mr. Geithner's previous toxic asset plan, it is more and more likely that Mr. Geithner’s agenda will not receive congressional support.

Additionally, Mr. Geithner himself is jointly responsible for the atmosphere in which regulators are pessimistic about his new reforms. Senator Bernie Sanders, an independent from Vermont, has stated on numerous occasions that the Federal Reserve has loaned at least $2.2. trillion to banks, without permission from the Congress or president. And Ron Paul, a Republican from Texas, has received tremendous support for his House bill to audit the Fed. Because it is likely that those loans began while Mr. Geithner was head of the New York Fed, Mr. Geithner at least implicitly gave his approval of those loans which have given free money to bank executives without freeing the credit markets. And now his reform plan includes expanding the powers of the Federal Reserve, at the same moment when Congress is pressing the Fed to release disclose who received the loans and demand additional accountability by auditing the Fed.

The article also states that “Ms. Schapiro (chairwoman of the SEC) and Ms. Bair (chairwoman of the FDIC) have argued that more authority should be shared among a council of regulators”. Considering that the Federal Reserve has no regulatory authority to assist commercial banks which are near insolvency, such power is instead given to the FDIC, it would seem that Ms. Schapiro and Ms. Bair should be demanding that Mr. Geithner uphold the laws which have been passed by Congress and prior administrations and that Mr. Geithner and the Federal Reserve cease interfering with their respective agencies. The bailout policies which began with the Federal Reserve while Mr. Geithner was leading the New York Fed are not only legally questionable, but have also been an unmitigated disaster – this is why Mr. Geithner should be upset with himself and not with other regulators. Or perhaps he realizes how liable he is for the present situation, and is seeking to shed culpability inasmuch as possible.