Treasury Secretary Tim Geithner, winding down his testimony before the Senate Budget Committee today, was asked a simple question by Sen. Ron Wyden (D-OR): Does the government have the legal authority to prevent another company from imploding on the same monumental level as AIG?
Geithner’s simple answer was “no.”
“You have to start by making sure that institutions that pose a potential risk to the system … have strong oversight over them with sufficient conservative constraints on risk taking,” Geithner explained.
AIG, he added, “was allowed to build up without any effective supervision” and permitted to “attach a very risky business to … [a] set of healthy insurance companies.”
Geithner’s admission on the government’s lack of legal authority to prevent a collapse on the level of AIG would seem to be a cry for congressional remodeling of the nation’s financial regulatory system. The House, under Financial Services Committee Chairman Barney Frank (D-MA), and the Senate Banking Committee are getting the ball rolling on broad regulatory reform, but the process isn’t expected to culminate in law until the summer — and Geithner himself has postponed a rollout of principles for reform that was originally expected in April.
At the close of Geithner’s appearance, Budget Chairman Kent Conrad (D-ND) congratulated him half-jokingly, quipping that “you’ve done a superb job; the markets are up over 100.”
Ostensibly, that rise is unrelated to the risk of AIG Redux …
