Tuesday, March 24, 2009

Treasury Seeks Vast New Powers

The question is will they use the AIG crisis in order to give them that power?

Geithner made it clear he believes the treasury secretary should be granted unprecedented power, after consultation with Federal Reserve Board officials, to take control of a major financial institution and run it. The treasury chief is an official of the administration, unlike the FDIC, which is an independent regulatory agency.

In other words the Treasury would run AIG instead of trying to find some altruistic person like Ed Liddy the current CEO. It seems plausible but what criteria would the Treasury need in order to take over the company? If the bank broke a stress test for one quarter, lets say, would the Treasury immediately nationalize the company? In this case there will be a fear of rolling nationalizations every time there is a recession. Also there needs to be some sort of check from another branch of government or there could be abuses.

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