It should have been clear from the outset that Geithner, previously the head of the New York Federal Reserve Bank, accepted his position as Treasury Secretary for the explicit purpose of consolidating the Fed's reach. I cannot see any reason for someone holding such a powerful position to accept such a demotion unless they have ulterior motives. And I think after seeing the skyrocketing deficits in the first 6 months, we can rule out any notions of altruism in "fixing the nation's finances."
But it has become apparent that both Bair and Schapiro are not prepared to budge on their authority.
The interesting undertones to this are that Geithner effectively holds a guillotine above the head of the FDIC. They are, for all intents and purposes, out of cash. There are three large banks (Colonial, Guaranty, and Corus) that require resolution, but the FDIC has only a pittance remaining to fund such action and requires tapping into their $500 Billion line of credit with the Treasury to do so.
Geithner's cavalier attitude in demanding more power for the Fed is likely not a coincidence in my mind.
From the Wall Street Journal:
Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation....
Mr. Geithner told the regulators Friday that "enough is enough," said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.
Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.
Friday's roughly hourlong meeting was described as unusual, not only because of Mr. Geithner's repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies.
Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among others, have argued that more authority should be shared among a council of regulators..
The government's proposal would empower the government to take over and break up large financial companies, merge two bank regulators, and toughen oversight of mortgages, among other things.
Administration officials say they aren't worried about the overhaul's prospects, adding that there is consensus on key aspects, including the regulating of over-the-counter derivatives. Treasury officials say they expected a big debate over the complex legislation. The first piece, which addresses executive pay, passed the House Friday.
"The industry is already back to their pre-meltdown bonuses," said White House Chief of Staff Rahm Emanuel. "We need to make sure we don't slip back to risky behavior where the institutions have all the upside and the taxpayers have all the downside, which is why we need regulatory reform."
Neal Wolin, Treasury's deputy secretary, said Mr. Geithner told regulators "they have the prerogative to express their views, but he wanted to make sure that, since everyone had agreed on the importance of achieving reform this year, everyone stayed focused on that goal."...
The administration has pushed for Congress to complete the overhaul by the end of the year. House Financial Services Committee Chairman Barney Frank (D., Mass.) and Senate Banking Committee Chairman Christopher Dodd (D., Conn.) have both said that remains the goal.
Both men, however, have suggested the overhaul could change from Treasury's proposal. Sen. Dodd favors giving extra powers to an oversight council rather than the Fed. Mr. Frank said Monday lawmakers were still working on a way to "make sure you have a sufficient broad base of participation and input" and "to make sure you have effective authority."
He said the flap several months ago over the Federal Reserve's role in allowing American International Group Inc. to pay large bonuses to employees "damaged the Federal Reserve politically."
The top Republicans on these committees, Sen. Richard Shelby (R., Ala.) and Rep. Spencer Bachus (R., Ala.), have also expressed skepticism over ceding too much power to the Fed.
"A rush to judgment where they basically throw these things together without any consensus is going to be a disaster," Rep. Bachus said.
With various agencies and interests fighting for their own survival, who wants to bet that one or more of them aren't willing to hold the economy or the financial system hostage to prove that they're not bluffing.
For more on this matter, one may wish to investigate Karl Denninger's Market Ticker, "Is The FDIC Broke And Covering It Up?"
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