I am interested in hearing your opinion as to how this Country should
fix "The Problem".

Here is a story about how the Obama Administration is approaching it.

TMT


Financial overhaul bill gets wary reception
By JIM KUHNHENN and ANNE FLAHERTY, Associated Press Writers Jim
Kuhnhenn And Anne Flaherty, Associated Press Writers
Thu Oct 29, 6:30 pm ET

WASHINGTON – An Obama administration plan to dissolve large,
struggling financial firms rather than bail them out is encountering
Republican resistance, Democratic doubts and only qualified support
from regulators.

At a House Financial Services hearing Thursday, lawmakers from both
parties worried that the proposal would give regulators and the
executive branch unprecedented power.

"I'm not a man that fears this administration or you," Rep. Paul
Kanjorski, D-Pa., told Treasury Secretary Timothy Geithner. "But I do
fear the accumulation of power exercised by someone in the future that
can be extraordinary."

Others argue that by singling out financial firms important to the
economy, the government could inevitably set itself up to bail them
out, and that even dismantling rather than rescuing them would take
taxpayer money.

"Apparently, the `too big to fail' model is too hard to kill," quipped
Republican Rep. Ed Royce of California.

Rep. Brad Sherman, D-Calif., called the bill "TARP on steroids,"
referring to the government's $700 billion Wall Street rescue fund.

"You've got permanent, unlimited bailout authority," he told Geithner.

Geithner disagreed.

"The only authority we would have would be to manage their failure,"
he told the committee.

The debate comes as Congress works on legislation to respond to the
financial crisis that clobbered Wall Street last year and fed the
recession.

For the committee's chairman, Rep. Barney Frank, D-Mass., who wrote
the proposal in close coordination with Treasury, the broad skepticism
illustrates the delicate work needed to tackle such a big task.

The legislation would let federal regulators identify and monitor big
financial firms and step in to wind them down before they collapse. If
the government must use taxpayer money to dissolve a company, Treasury
would recoup those costs by imposing a fee on firms with assets of at
least $10 billion.

When to create such a fund has become a significant point of
contention.

Frank and the administration recommended that any taxpayer infusion be
recovered after the fact from large institutions.

But Sheila Bair, the head of the Federal Deposit Insurance Corp.,
which would conduct such a wind down, said the industry should pay
into an insurance-like fund ahead of time. Rep. Luis Gutierrez, D-
Ill., and AFL-CIO president Richard Trumka pressed for a similar
structure.

Large financial firms, however, oppose an up-front payment. And
Geithner said a prepaid fund would increase the temptation — or "moral
hazard" — for companies to take excessive risks with the expectation
that the government will step in to protect them.

"We don't want to create that expectation," Geithner said.

A key element of the proposal would assemble a council of regulators
to identify large institutions whose businesses and transactions are
so intertwined that their collapse would damage the economy.

The legislation envisions keeping the list of those firms secret,
though Geithner acknowledged that existing disclosure requirements
would make it hard to hide their identities.

The Federal Reserve would have additional powers to oversee those
institutions and, if necessary, step in and regulate them.

Comptroller of the Currency John C. Dugan said that additional power
the legislation would give the Fed could result in less effective
banking standards and undermine the role of other bank regulators.

The FDIC, which currently oversees smaller insured depository
institutions, could dissolve large failing institutions — an authority
it now only holds over banks.

Regulators were powerless last year when investment bank Lehman
Brothers and insurance giant American International Group neared
collapse.

The government let Lehman Brothers fail, helping trigger the worst
financial crisis in seven decades as nervous investors withdrew funds
from money markets and credit lines froze. When it came to AIG, the
Bush administration decided to swoop in with a hefty government
bailout. Frank and Geithner said the latest proposal would prevent the
government from having to decide between doing nothing and a costly
rescue.

"Without the ability for the government to step in, manage the failure
of a large firm and contain the risk of a fire spreading, we are
resigned to repeat the experience of last fall," Geithner said.

Bank representatives told lawmakers they oppose putting the FDIC in
charge of dismantling failing nonbank firms. Banks pay the FDIC to
insure deposits, and they don't want their premiums to pay for the
FDIC's new power.

"If our fund is strong and a major nonbank fails, there will be a
strong temptation to unfairly raid the bank FDIC fund to pay for it,"
said Edward Yingling, president of the American Bankers Association,
in written testimony.

Frank on Thursday also clashed on another financial regulation front.
The House Energy and Commerce Committee wants to change the governing
structure for a consumer finance protection agency that Frank's
committee had already approved.

The Financial Services Committee wants a single director to run the
agency. The energy committee on Thursday approved an amendment placing
a five-member bipartisan commission in charge.

Frank said the change "will weaken the capacity of the agency to
provide consumer protection."