Monday, June 15, 2009

Regulation = Extortion

For an interesting exercise, replace the words "regulation" with extortion, "regulator" with extorter, and "protection" with "theft" in the USA Today article below:

WASHINGTON (Reuters) — Senior Obama administration officials Monday said in a newspaper op-ed piece that a landmark financial regulation reform plan to be released this week will target capital requirements, securitization and other problem areas blamed for the global financial crisis.
In the most complete summary of the plan seen in some time, U.S. Treasury Secretary Timothy Geithner and National Economic Council Chairman Lawrence Summers said the plan would offer "a stronger framework for consumer and investor protection."

The piece was published in The Washington Post ahead of Wednesday's expected release of a package of proposals under discussion for six months.

One proposal, said Geithner and Summers, will be "raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms."

In addition, large and interconnected firms whose failure could threaten the stability of the system "will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system."

New reporting requirements will be urged for issuers of asset-backed securities, as well as a rule saying securitizers must "retain a financial interest" in the performance of the asset-backed securities they issue, they said.

Securities backed by risky assets such as subprime mortgages are widely blamed for much of the global financial crisis.

Reduced reliance on credit-rating agencies will also be proposed, the op-ed piece says. Credit rating agencies generally gave even the riskiest asset-backed securities a clean bill of health.

Addressing another market implicated in the crisis, the plan will urge "oversight of 'over the counter' derivatives," an unspecified "harmonizing" of futures and securities regulation, and stronger payment and settlement systems.

"All derivative contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse," according to the op-ed piece.

Unregulated derivitive contracts that went sour caused the collapse of American International Group (AIG).

The Geither and Summers piece said the proposals will call for "a resolution mechanism that allows for the orderly resolution of any financial holding company whose failure might threaten the stability of the financial system."

It also said the United States "will lead the effort to improve regulation and supervision around the world."

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