Treasury Secretary Tim Geithner’s testimony before Congress last weekrightly angered a lot of conservatives, small-government leftists, libertariansand other friends of the free market. And Geithner’s ideas deserve criticism.
But those who believe that Geithner’s regulatorypower grab offers something new, radical or even particularly different fromwhat the Bush administration proposed ought tolook elsewhere. In fact, Geithner’s plans promise lots of continuity with theBush administration — and that’s not necessarily a good thing.
In a lengthy session before House of Representatives’ Financial ServicesCommittee, Geithner called for "better, smarter, tougherregulation" that he says is aimed at cracking down on the abuses thatbrought about the financial crisis. Geithner’s proposals would create clearregulatory lines for derivatives andhedge funds, place some insurers under federal oversight for the first timeever, raise capital requirements for all sorts of institutions and put lots ofnew regulations on money-market funds.A new agency — or existing agency withnew powers — would serve as a "systemic risk regulator."
The plan has a lot of problems. The crisis seems tohave arisen in some of the areas under the tightest government supervision, andincreasing regulation probably won’t avoid a reoccurrence. Freddie Mac andFannie Mae, the two "government supported enterprises" at the root ofAmerica’smortgage mess, got into troublebefore anyone else even though there’s a federal office intended to watch over them alone.
On the other hand, the hedge fund industry, which deals with plenty ofgovernment regulation but has no particular regulator,seems to have emerged with verylittle damage.
The plan does offer a few halfway decent ideas.If it’s structured properly(which it isn’t likely), hedge funds might actually find a single regulator more flexible and creativity-promoting than theregulatory mish-mash they encounternow. Just about everyone who deals with insurance, likewise, has long agreedthat the 19th-century state-by-state system for regulating insurance needsserious changes.
The Obama administration would do well touse these ideas as a model. It might, for example, take a look at revisingoverly burdensome Sarbanes-Oxley accounting standards that the Bushadministration imposed on publically traded companies.
But, like much of the Obama administration’s economic policy, Geithner’splans borrow a lot of pages from a script that Americans should know prettywell: the Bush administration’s. A year ago –with little notice outside of thefinancial press — the Bush administration announced its own 202-page"Blueprint for a Modernized Financial RegulatoryStructure."
Nearly all of the essential details of Geithner’s plan are in the Bushadministration document. The Bush administration calls for the same systemicrisk regulator, the same vastincreases in federal power and a number of new federal institutions with broadpowers to oversee economic stabilityand security.
In some major respects, in fact, the Bush administration wanted to regulate more than Obama’s has proposed doing.Bush Treasury Secretary Hank Paulson, for example, called for placingsignificant new burdens on thrifts (also known as savings and loans) and creditunions. Obama’s administration hasn’t promoted that todate.
It’s not a coincidence, of course, that Geithner echoed so many aspects ofPaulson’s plan. Geithner was an advisor toPaulson himself.
The Obama administration, despite promises of "smarter government"and fiscal responsibility, appears quite content tocontinue the Bush administration’s record of offering big corporate bailouts,expanding social spending, raising regulatoryburdens and increasing the number of Americans who pay nothing in net taxes.
Geithner’s proposals have plenty of problems. Unlike the Bushadministration’s, it’s likely that at least some of them will become law. Ifthey represent a change in direction, it’s a pretty minor one.
Eli Lehrer is a senior fellow at the Competitive Enterprise Institute in Washington.