White House Debuts Financial Overhaul: My Comments

I think we may see a totally different Wall Street in a few years depending on what Congress passes in the next few weeks. Here are the major changes that the Treasury is putting forward and my comments.

• Imposing tougher standards on financial institutions judged to be so big that their failure would represent a risk to the entire system.

I wonder if this will stop certain companies from merging into a "system risking" company? I can see the SEC trying to stop certain companies from merging on the basis of the "too big to fail" rule. So the days of an American company like Citi or AIG becoming a world financial behemoth might be over.

• Extending federal regulations for the first time to all trading in financial derivatives, exotic financial instruments such as credit default swaps that were blamed for much of the damage in the meltdown.

This is one of those things that should have been done years ago and could have saved us from the meltdown. No market that trades in the trillions of dollars should go unregulated. I'm sure someone might have caught AIG loading up on those CDS (and shorted AIG to the hilt) years ago if this market was more transparent.

• Requiring hedge funds and other private pools of capital, including private equity funds and venture capital funds, to register with the Securities and Exchange Commission if their assets exceed a certain size. The threshold amount has yet to be determined.

I wonder if this will drive the hedge fund industry offshore in order to avoid this requirement and still keep their level of secrecy? If it is worded to say that any hedge fund trading in a US market (or that hold equities or debt in American companies) must register then they might not have a choice. This rule might drive many pools of capital to domicile in Switzerland instead of the US.

• Creating a systemic risk regulator to monitor the biggest institutions. Geithner did not designate where such authority should reside, but the administration is expected to support awarding this power to the Federal Reserve.

I wonder what this departments job entails? Will they step in whenever some sort of risk threshold is met and nationalize the company? Also what is the definition of "biggest institutions?" Will this SRR step in if it sees GE trying to throw billions into an expensive startup like semiconductors? So will they dictate what new nations a company tries to enter because the regional risk is too high? Lots of questions that need to be answered or this might curtail almost all risk taking by these biggest institutions.