Who Pays For Government Power Over The Next AIG? Geithner Could Leave That to Congress

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Treasury Secretary Tim Geithner will be back before the House Financial Services Committee tomorrow to outline his plea for emergency powers to take over and wind down foundering non-bank financial firms — but he may leave unanswered the question of how to fund his plan.

Early leaks of Geithner’s request, which is slated to head to Capitol Hill in draft form later today, suggest that the emergency “resolution authority” would be paid for either by a mandatory congressional appropriation or by charging the private companies covered by the change.

The latter of those two options could be a non-starter with the financial industry, which is unlikely to welcome a new government fee, while the former could face resistance from members of Congress who would prefer to use the FDIC’s deposit insurance fund (reliant on payments from banks) as a model. Either way, as the WSJ reports, we know two things for sure:

a) The “resolution authority” won’t be funded through the FDIC’s deposit insurance kitty, which is already running dangerously low amid the failure of IndyMac and other financial institutions.

b) Geithner’s pitch to the House tomorrow will center on the need to prevent taxpayers from shouldering the burden of winding down failing financial firms of various non-bank shades, from insurance companies to commodities dealers.

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