Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, September 23, 2009

Geithner on Financial Regulatory Reform

Treasury Secretary Timothy F. Geithner, Written Testimony before the House Financial Services Committee, on Financial Regulatory Reform (Sept. 23, 2009):

At a minimum, reform must achieve these critical objectives:

It must provide substantial new protections for consumers and investors.
It must create a more stable, safer financial system, one less prone to crisis.
And it must safeguard American taxpayers from having to bear the costs of battling future crises.
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The need for a dedicated, consolidated consumer protection agency is clear. The current consumer protection system failed to protect consumers, responsible providers, or market efficiency and innovation. 

* * *
[W]e cannot allow firms to reap the benefits of explicit or implicit government subsidies without very strong government oversight. We must substantially reduce the moral hazard created by the perception that these subsidies exist; address their corrosive effects on market discipline; and minimize their encouragement of risk-taking. So, for example, we cannot permit weak regulation of government-sponsored enterprises like Fannie Mae and Freddie Mac that accumulate trillions of dollars of exposure that is implicitly backed by the taxpayer.  We cannot again permit our largest investment banks or other firms to operate without real consolidated supervision, yet obtain government assistance when they collapse.

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