Mind Over Market

In a new brief released today, Peter J. Wallison at the American Enterprise Institute states that the Obama Administration's financial regulation plan -- as represented in Senator Christopher Dodd's bill -- 'raises the question of whether its purpose is actually to address the causes of the financial crisis or -- like ObamaCare -- to put the government in control of yet another sector of the U.S. economy." Wallison, who is the Arthur F. Burns Fellow in Financial Policy Studies at AEI, argues that the bill's provisions allowing for the Federal Reserve to regulate all large, nonbank financial institutions "would signal to the market that these institutions are too big to fail." The proposed $50 billion rescue fund to be administered by the Federal Deposit Insurance Corporation (FDIC) enhances the too-big-to fail approach by assuring creditors "that they will be bailed out if one or more of these large institutions are in danger of failing," the br...

The director of the independent and nonpartisan Committee on Capital Markets Regulation, Hal S. Scott of Harvard University, says that the Obama Administration’s proposal on the resolution of systemically-important financial institutions, if adopted, would lead to the creation of ‘a zombie financial system’ where financial institutions can neither die nor restructure sufficiently to be viable and where the burden of sustaining them falls on the taxpayer. The Committee recommends instead that financial institutions determined by Treasury to be systemically important should be resolved by the Federal Deposit Insurance Act and not under either bankruptcy law or the open bank assistance provided under a too-big-to-fail policy (or under a too-systemically-important-to-fail policy). Derivatives contracts could be sold rather than liquidated to limit systemic issues. Scott made his comments at a forum sponsored by the American Enterprise Institute where a panel of experts commented on his pre...

Treasury today added a new wrinkle to the Obama Administration's proposed financial regulatory overhaul: All hedge funds and investment advisors with more than $30 million under management will have to register with the SEC. Despite the fact that no hedge funds had to be bailed out in the financial meltdown, Assistant Treasury Secretary Michael Barr said in an address that hedge funds need to be regulated because their deleveraging contributed to the financial crisis and regulators need to be able to identify potential systemic risk from the world of hedge funds. By Robert Stowe England mindovermarket.blogspot.com July 15, 2009 Michael Barr, assistant secretary for financial institutions, today revealed a new item on the Administration's refinancial regulatory reform agenda: the regulation of hedge funds. Hedge funds and investment advisors above the $30 million threshold will have to register with the Securities and Exchange Commission and be required to disclose to regulators...