Fallout: The Financial Crisis

Fed answers ‘too big to fail’ question

Steve Henn Jun 15, 2009
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Fallout: The Financial Crisis

Fed answers ‘too big to fail’ question

Steve Henn Jun 15, 2009
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TEXT OF STORY

Steve Chiotakis: We’re going to hear a lot about financial industry regulations this week. President Obama is set to unveil a number of proposals, and he’s already got some in his administration touting what’s to come in op-ed pieces. Both Treasury Secretary Tim Geithner and Obama’s chief economic advisor, Larry Summers, published an outline in today’s Washington Post. The latest from Marketplace’s Steve Henn.


Steve Henn: For more than a year, the feds have struggled to answer this question: what should regulators do with banks and insurance companies deemed too big or interconnected to fail?

Bailing them out’s obviously not a long-term solution. The administrations plan gives the Fed new powers to oversee huge firms and the ability to unwind them and take them apart if they begin to collapse. The idea is to recreate on a larger scale what the FDIC has done for years in the banking industry.

The plan would also regulate derivatives, like credit default swaps and divertive traders. It would require firms that create new mortgage-backed securities and bundle of credit card debt to invest some of their own money in these assets. But the plan does little to streamline the alphabet soup of agencies that already police banks and securities markets.

In Washington, I’m Steve Henn for Marketplace.

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