Obama’s plan to fix the financial sector

This is a real challenge. We shall see how things go …

From the link:

As lawmakers pressed the Obama administration for details of how it would assist financial firms that have been rapidly deteriorating, Treasury Secretary Timothy F. Geithner said Wednesday the administration is working on a comprehensive plan to ”repair the financial system.”

Mr. Geithner declined to provide any specific details or to address rising calls for the creation of a government institution to buy or guarantee the declining assets at several of the nation’s largest banks. He discouraged speculation that the plan would include the nationalization of some banks.

”We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” he said.

But bank stocks surged on hopes the government was moving toward creating a ”bad bank” to purge toxic assets from balance sheets that are rapidly deteriorating as the economy worsens. On Wednesday, the Federal Reserve cautioned that the economy was still spiraling downward on many fronts.

According to several Wall Street officials, senior administration members spent the weekend and the last few days reaching out to top bankers for their views on how a bad bank should be structured. Lawrence H. Summers, head of the White House’s National Economic Council; Sheila C. Bair, the Federal Insurance Deposit Corporation chairwoman; and Mr. Geithner have been involved in the talks, the Wall Street officials said.

Geithner tapped for Treasury

Obama continues to build his team. Looks like this choice is amenable to Wall Street.

From the link:

President-elect Barack Obama will name Timothy F. Geithner, president of the Federal Reserve Bank of New York, to be his Treasury secretary, moving to fill a key post at a moment when the quavering financial markets are looking for reassurance about the direction of economic policy, people briefed about the decision said Friday.

In picking Mr. Geithner, who has been at the center of efforts to contain the financial crisis, Mr. Obama passed over Lawrence H. Summers, who was Treasury secretary in the final year and a half of the Clinton administration. The president-elect might name Mr. Summers, a highly regarded economist and a former president of Harvard University, as a senior White House adviser, people involved in the transition said.

 

Word of Mr. Geithner’s selection helped drive stocks sharply higher on Friday afternoon as investors concluded that Mr. Obama was taking steps to fill a leadership vacuum at a time when the economy and financial markets are showing new signs of strain. The Dow Jones industrial average closed up 494 points, a 6.5 percent gain after days of dizzying declines.

 

SEC and Fed want to toughen rules

This AccountantsWorld.com article outlines an effort by the SEC and the Federal Reserve to press Congress for additional regulatory and supervisory powers.

From the link:

At a Congressional hearing on how to modernize financial regulation, the S.E.C. and the Fed laid out similar, if somewhat competing, visions for a new regime capable of monitoring commercial and investment banks to ensure they remain financially sound in order to prevent another credit crisis.

 

Both the S.E.C. chairman, Christopher Cox, and the New York Federal Reserve Bank president, Timothy F. Geithner, said that the current patchwork of regulatory agencies, much of which dates back to the Depression of the 1930s, deserved part of the blame for the yearlong financial market turmoil.

But Mr. Cox said his agency should oversee investment banks, while Mr. Geithner said the Fed must have a direct supervisory role over any firms that borrow from the central bank.

”It’s very important that we have a role in consolidated supervision of these institutions because you will not have good judgments made by this central bank, this Federal Reserve, in the future unless we have the direct knowledge that comes with supervision,” Mr. Geithner told the House Financial Services Committee.