Boston University Law School professors react to Treasury Secretary Geithner’s wide-ranging plan to overhaul financial regulation.
“Secretary Geithner has kicked off the debate over regulatory reform starting with systemic risk. Regrettably, the proposals continue the Fed’s failed policy of ‘constructive ambiguity’ regarding too-big-to-fail firms. I applaud Geithner’s suggestion that TBTF firms have to be identified ahead of time. However, we now know that such firms and their uninsured creditors have an advantage that takes the form of the taxpayers’ safety net. The funding benefits of that safety net have to flow to the general treasury of the U.S., not to the bottom line of TBTF firms. Otherwise, we are doomed to re-live this cycle.”
Professor Tamar Frankel, an authority on securities law and author of “Trust and Honesty: America’s Business Culture at a Crossroad“:
“The market we have today does not signify freedom for investors, but freedom for a few very tightly controlled, very large concentrations of investors’ money. This is private power and like any power it requires counterveiling power. I just hope that the government exercises a counterveiling balance to the private power holders, rather than taking them over. And rather than rely on self reporting, which unfortunately may note be reliable any more, let government begin to rely on government examinations by experts.”
“Under this proposal, the game changes from “too big to fail’ to ‘big enough to qualify for FDIC liquidation,’ which should foster more market discipline on these institutions, in addition to the major increases in government supervision proposed by the Treasury. The administration is smart not to propose at this time any restructuring of the existing financial agencies. All agency personnel need to stay focused on managing the crisis and not on the game of bureaucratic musical chairs.”
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