Geithner Before Senate Banking Committee Re: Reg Reform — GS/MS/JPM

Treasury Secretary Tim Geithner is making a credible appearance before the  Senate Banking Committee today.   Somebody has been working with Geithner on his talking points and his presentation, which is good.  And such is the intensity of the crisis that Geithner is actually being forced to address many issues in a forthright way.  Too little too late, but we’ll take what we can get.

It looks like Kudlow & Co on CNBC are doing some good work on questioning a bigger role for the Fed  in the new regulatory mix.   Senator Judd Greg (R-NH) is carrying the water for the Fed Board of Governors and supporting more power for the central bank, which is no surprise.    There is a growing plurality of  Senators that are opposed to giving the Fed more authority, but the issue is not decided.   Notice the laudatory comments for Geithner from Senator Kay Bailey Hutchison (R-TX).

It is very interesting that the G-30 via Paul Volcker has advanced the idea of ending prop-trading by the dealer banks.  If that comes to pass, then Goldman Sachs and Morgan Stanley will be trying to exit the status of  “bank” ASAP.  Trouble is, the change in the markets will make that difficult if not impossible.  The prop desk + hedge fund model at GS is ill-suited to the utility regime

I have even heard that JPM has pondered the process of becoming Chase again and spinning the JPMorgan investment business to shareholders.  Trouble is, who gets the ball in terms of the OTC derivatives book?  Maybe we take the OTC books from JPM, BAC/Merrill, etc and create a “bad bank” to wind down the rest of the CDS toxic waste pile.

Bottom line to me is that the mainstream attention to the financial crisis is becoming so intense that the Geithner/Summers/large bank political tendency is being forced into a rearguard action.  There are a number of concessions to the critics made in the current Treasury proposal.  Depending on the events that emerge in coming weeks and months, this reform situation could contain some interesting albeit still modest twists.

I will be in DC testifying before the SBC to talk about regulation of OTC derivatives on Monday: “Over-the-Counter Derivatives: Modernizing Oversight to Increase Transparency and Reduce Risks”

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