Fallout: The Financial Crisis

New regulations match modern finance

John Dimsdale Mar 26, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

New regulations match modern finance

John Dimsdale Mar 26, 2009
HTML EMBED:
COPY

TEXT OF STORY

Kai Ryssdal: And maybe it’s just me, but Treasury Secretary Timothy Geithner keeps popping up in front of the House Financial Services Committee like he’s got all the time in the world. Today he was asking Congress to give regulators more power. New ways to drag what’s been going on in a big chunk of the financial markets out of the shadows. Our Washington bureau chief John Dimsdale reports now on the Obama administration’s new rules of the road.


JOHN DIMSDALE: Under Secretary Geithner’s plan, complex financial instruments would be traded on regulated exchanges. The SEC would require hedge funds to disclose their finances. And there would be an uber-regulator that could take over tottering giants. At today’s hearing, Geithner said current government rules are no match for modern finance.

TIMOTHY GEITHNER: This crisis has made clear that large interconnected firms and markets need to be brought within a stronger and more conservative regulatory regime.

Some experts say deregulation spawned new forms of banking and risk-taking. Geithner says banks have evolved way beyond the old regulations. William Isaac is a former chairman of the FDIC. He says in 1980, regulated banks handled most commercial lending, and today, it’s less than a third.

WILLIAM ISAAC: So more and more of the business of banking is occurring outside of banking institutions. We have this elaborate safety net and regulatory system in place for our banks, but we didn’t have anything in place for firms like AIG or other very large and important insurance companies or investment banks.

But the University of San Francisco’s Jon Fisher says watch out.

JON FISHER: We thought that Sarbanes Oxley legislation after the collapse of Enron and Worldcom was largely a good thing. And the unintended consequences are that it’s extraordinarily difficult for U.S. companies to complete initial public offerings.

Fisher fears the unintended consequences of regulating new financial services could end up stifling growth.

In Washington, I’m John Dimsdale for Marketplace.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.