Greatest Regulatory Reform Since the Great Depression

In Financials on March 26, 2009 at 12:32

wallstreet1Today, Secretary of Treasury Timothy Geithner will testify before the House Financial Services Committee his intentions of regulating the American financial markets. This is huge news for the financial world as Geithner suggests that Hedge Funds, Private Equity Shops and major insurers such as AIG, should join banks under constant governmental supervision. Let me remind you that Hedge Funds were subject to no authority whatsoever, and could take extremely risky positions. Geithner aims at creating a new regulatory framework that will 1) supervise and monitor all major players of the financial market 2) increase the required capital adequacy ratio (necessary capital reserves in a firm) for big players – as a precaution to overexposure and unexpected losses – 3) expand Fed’s authorities to monitor the aggregate transaction value of all financial derivative products 4) a more rigorous disclosure of large firms’ financial accounts so that the government can be more proactive and finally 5) a long-term performance-based payment method curtailing big bonuses awarded on a short-run boom. This is a massive tectonic shift in the financial system with the government trying to regain and control the markets. I don’t know if this regulatory ‘U-Turn’ will pass through Congress, but this is by far the most radical regulatory amendment since the Great Depression.


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