By David Stout - New York Times
WASHINGTON President Obamas plan to overhaul the regulatory structure of the nations financial system faces formidable obstacles on Capitol Hill if the reception accorded Timothy F. Geithner the Treasury secretary on Thursday was any indication.
Mr. Geithner went before the Senate banking committee and urged the lawmakers to act quickly on the presidents plan.
Every financial crisis of the last generation has sparked some effort at reform" Mr. Geithner said. But past efforts have begun too late after the will to act has subsided."
One senator after another said his or her will to act was in no danger of subsiding. But they also signaled an unwillingness to accept the White House recommendations intact particularly the idea of expanding the powers of the Federal Reserve to enable it to regulate risk across the financial system.
I believe that we can find common ground in a number of the areas contained in your proposal" the committees chairman Christopher J. Dodd Democrat of Connecticut said in a comment that typified the lukewarm reaction to the administrations plan.
As for the Federal Reserves role Mr. Dodd described himself as open on the issue." But borrowing a quote from an economics professor he went on to wonder aloud if giving the Federal Reserve more authority is like a parent giving his son a bigger faster car right after he crashed the family station wagon."
The panels ranking Republican Senator Richard C. Shelby of Alabama said he did not want to allow the administrations recommendations to limit the debate we are about to undertake." And while agreeing that the present regulatory setup is antiquated and inadequate Mr. Shelby said he thought the Federal Reserve already had enough to do with a lot of responsibilities that conflict at times."
Mr. Geithner tried to knock down any impression that the Federal Reserve would become much more powerful. Our proposals for the additional authority were giving the Fed are actually quite modest and build on their existing authority" he said.
Moreover he said the Fed was not responsible for the current situation and it has a greater knowledge and feel for broader market developments than is true for any other entity in that context."
Mr. Geithner is sure to face more sharp questioning. He was to have appeared Thursday afternoon before the House Financial Services Committee but the session was postponed because of heavy House business on the floor.
At least twice Mr. Geithner described the White House plan as pragmatic" and meant to do what is essential rather than what would be ideal. It does not propose reforms that while desirable would not move us toward achieving those core objectives and creating a more stable system."
But Democrats and Republicans alike voiced skepticism if not outright hostility. For instance Senator Mark Warner Democrat of Virginia said he shared his colleagues concerns about the administrations blueprint including this expansion of authority within the Fed."
Senator Jim Bunning Republican of Kentucky was almost disdainful. Your plan puts a lot of faith in the Federal Reserves ability to spot risk and exercise its power to prevent the next crisis" he told Mr. Geithner. If the Fed and other regulators had been doing their jobs and paying attention to what the banks and other firms were doing earlier this decade they almost certainly could have prevented the mess."
Aware that some legislators have suggested that a council of regulators not a single agency might be better for overseeing large institutions Mr. Geithner said in his opening remarks that you cannot convene a committee to put out a fire."
The administrations proposal for a new agency to protect consumers in their banking transactions was more warmly received. Mr. Dodd applauded the idea and lashed out at banking interests who have already criticized it saying that the people who created the mess are the ones now arguing that consumers ought not to be protected" he said.
Mr. Geithner alluded to one element of the recent and still not entirely resolved financial crisis that has caused particular anger among the public. From now on he said no one should assume that the government will step in to bail them out if their firm fails."
An intriguing question was posed by Senator Michael Bennet Democrat of Colorado. If the regulatory setup the administration is advocating had been in place not many months ago would things be different now?
Such what if" questions are ultimately unanswerable of course but Mr. Geithner tried anyhow.
Banks would not have taken on so much risk" he said. Institutions that were not regulated banks would not have been permitted to take on that level of risk; consumers would have been less vulnerable to the kind of predation we saw particularly in mortgage markets."
And Washington he said would have had the ability to act earlier more swiftly to contain the damage posed by the inevitable pressures that come when firms fail."
