To Avoid Rerun of Foreclosure Crisis Financial Regulations to be Tightened

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There is a double problem – solving the financial crisis of today and to take preventive measures to avoid a similar situation tomorrow. Thus to avoid a rerun of the foreclosure crisis financial regulations are going to be tightened by the government.

The new Obama government outlined in details its comprehensive plans to thoroughly overhaul the financial regulatory infrastructure. From henceforth hedge funds and traders in out-of-the-ordinary financial instruments would come under strict supervision by the government. It is these freewheeling players of Wall Street that are mainly responsible for the financial crisis the nation is currently undergoing.

No other previous Treasury secretary like the present incumbent, Timothy F. Geithner has faced such a grim scenario and has been so much focused on. Geithner outlined the details of the plan to the Financial Services Committee. He got a noticeably mixed reception. He stressed that the changes were essential to fix a system that had become flawed in the course of time. Its shortcomings had become exposed by the present crisis.

In his introductory sentence Geithner gave the call for “comprehensive reform – not modest repairs at the margin, but new rules of the game.” He described the scenario as “very complex, very consequential, very difficult.” He highlighted the necessity of getting on with these changes as quickly as possible.

The plan included the setting up of one sole agency “with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities”. Talking on the matter Geithner opined, “Financial products and institutions should be regulated for the economic function they provide and the risks they present, not the legal form they take. We can’t allow institutions to cherry pick among competing regulators, and shift risk to where it faces the lowest standards and constraints.”

He did not specify the details of how all this would be enforced and made workable but said that this would be known within few weeks.

Barney Frank (Democrat – Massachusetts) the chairperson of the committee said that the government needs more alternatives than allow another firm like Lehman Brother to fail, or permit the injection of taxpayer’s money into companies that are thought to be too big to fail like AIG.

The Republicans reacted in a lukewarm manner. Its representative Spencer T. Bachus from Alabama who is a ranking minority member stated that a plan that allows the government to subsidize the cost of “resolving” collapsing institutions is “unacceptable”. However the hoped more hearings would be arranged for discussion of the matter.