Geithner: Critics of Reform Suffer ‘Amnesia’ About Crisis

U.S. Treasury Secretary Timothy Geithner has a stern message for critics of Wall Street reform who want to repeal laws aimed at preventing another financial crisis.
Get over your “amnesia.”
In an opinion piece published in the Wall Street Journal, Geithner invoked the memory of the first financial firm to fall in the 2008 run-up to massive bailouts and cash infusions for the biggest U.S. banks.
The GOP presidential candidates have all said or indicated they would repeal the Dodd-Frank Wall Street reform legislation signed into law by President Obama  in 2010 – which provides the framework for a regulatory process to wind down financial giants or nonbanking institutions that could hurt the U.S. economy if allowed to fail.
Dodd-Frank also created the Consumer Financial Protection Bureau, which is reviewing policies and complaints regarding unfair or deceptive lending practices.
The beginning of the financial crisis for Geithner started in the evening of a typical March day in 2008,  when the CEO of Bear Stearns telephoned saying the firm planned to file for bankruptcy in the morning.
Geitner at the time was the head of the Federal Reserve Bank of New York, “which serves as the fire department for the financial system.”
“The financial safeguards in the law at that moment were tragically antiquated and weak,” Geithner writes. “Neither the Fed, nor any other federal agency, had the necessary comprehensive authority over investment firms like Bear Stearns, insurance companies like AIG, or the government-sponsored mortgage giants Fannie Mae and Freddie Mac.”
In the spring of 2008, a rapidly increasing number of Americans were starting to see higher mortgage payments as teaser interest rates were resetting. They could no longer refinance because the value of their homes stopped rising — the leading edge of a wave of foreclosures and the collapse of home prices.
By the time Bear Stearns failed, the recession was then already several months old, but it would intensify at breakneck speed in the months to come.
“Yet only four years after the financial crisis began to unfold, some people seem to be suffering from amnesia about how close America came to complete financial collapse under the outdated regulatory system we had before Wall Street reform,” Geithner said.
At the time, regulators did not have the authority to oversee and impose limits on risk and leverage for large nonbank financial institutions, Geithner said.
And they had no authority to put these firms, or bank holding companies, through a “managed bankruptcy that wound them down in an orderly way.”
The safeguards on banks were much tougher than those applied to any other part of the financial system, but even those safeguards were not conservative enough, he said.
“For all these reasons, President Obama asked Congress to pass tough reforms quickly, before the memory of the crisis faded,” Geithner said. “The Dodd-Frank Wall Street Reform and Consumer Protection Act … put in place safer and more modern rules of the road for the financial industry.”

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