Rep. John Boehner has called Timothy Geithner's proposal to allow the government to take over nonbank financial institutions "an unprecedented grab of power," but a budget blueprint by House Republicans proposes steps similar to Geithner's plan, raising the question of whether the media, which have reported extensively on the conservative charge of a "power grab," will note the similarities.
In recent days, conservative media figures have characterized Treasury Secretary Timothy Geithner's proposal for Congress to pass legislation allowing the federal government to take over failing nonbank financial institutions as, in the words of Fox News' Sean Hannity, "the single biggest power grab and move toward socialism in the history of the country." Other media sources have uncritically cited such conservative claims, including House Minority Leader John Boehner's (R-OH) charge that Geithner's proposal constitutes "an unprecedented grab of power." But in the budget blueprint that House Republicans, including Boehner, released on March 26, they proposed "a process to address insolvent institutions that stops throwing good money after bad into failing institutions and places insolvent ones into temporary receivership." The Republicans' proposal raises the question of whether the media, which have reported extensively on the charge that Geithner is engaging in a "power grab" by asking Congress for this authority, will note that the same House Republican caucus that made the charge is now proposing to give the federal government similar authority.
In nearly 1,000 words, a CNN.com article on the Republican proposal does not note this. Despite quoting Boehner's criticism of the president's budget as "completely irresponsible," the article does not mention that the proposal Boehner is pushing includes a plan for federal authority that he previously denounced.
In prepared remarks for his March 24 testimony to the House Financial Services Committee, Geithner stated: "The Administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context," including the ability for the government to act "as a conservator or receiver":
As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can. The Administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.
The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities, and purchase an equity interest.
The U.S. government as a conservator or receiver would have additional powers to sell or transfer the assets or liabilities of the institution in question, renegotiate or repudiate the institution's contracts (including with its employees), and prevent certain financial contracts with the institution from being terminated on account of the conservatorship or receivership.
This proposed legislation would fill a significant void in the current financial services regulatory structure with respect to non- bank financial institutions. Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks.
Before taking any emergency action, the Treasury Secretary would need to determine that resolution authority is necessary upon the positive recommendations of the Federal Reserve Board and the appropriate federal regulatory agency.
Likewise, the House Republican budget blueprint -- signed by Boehner -- states that "our plan supports a process to address insolvent institutions that stops throwing good money after bad into failing institutions and places insolvent ones into temporary receivership":
Republicans believe the best antidote for market turmoil is certainty and economic growth. We oppose the trend toward national ownership and control of financial institutions. The government's interventions to date have generated market uncertainty and an aversion to private lending and investment. The government's strategy needs to minimize government interference in the management of companies and provide a clear exit strategy.
The Republican budget ends this failed bailout strategy by refusing to assume additional spending for bailouts. In addition, our plan supports a process to address insolvent institutions that stops throwing good money after bad into failing institutions and places insolvent ones into temporary receivership. Our plan would first perform a thorough stress test to determine whether a financial institution is healthy, troubled, or insolvent. For troubled firms, some portion of the firm's toxic assets would be insured, but such insurance would be self-financed by the industry itself in the form of premiums. For insolvent firms, either the FDIC or a Resolution Trust Corporation-type entity would restructure these firms in receivership by selling off their assets and liabilities, reappointing private management, while protecting depositors -- a process that builds off of Washington Mutual's arranged sale last year.