Geithner Starts to Unveil Regulatory Reform PlansTreasury Secretary Timothy Geithner plans to show his plans for reforming financial regulation during testimony before the House Financial Services Committee today. Geithner's four-part plan will address systemic risk, regulatory gaps and holes in the regulatory system, stronger consumer and investor protection and cooperation among international regulators.
Geithner's testimony will focus today on systemic risk. Details of the other parts of the plan will be rolled out over the coming three weeks. In addressing the problem of systemic risk, he calls for single systemic risk regulator. That regulator will be able to look at all aspects of any part of a financial company to find out what they're doing and the kinds of risks they're taking. Most importantly, the regulator will be able to determine what those risks pose in terms to the broader economy.
Geithner's plans does not say which regulator should serve as the systemic risk regulator, but will testify that the office must be independent. He will also push for requiring all hedge funds be registered with the SEC and that credit default swaps and over the counter derivatives be regulated. Geithner isn't expected to recommend what body should regulate these trading vehicles, but will insist that they have strong oversight and supervision.
This new four-part plan is Geithner's move to restore trust in the financial system and sets the new rules of the road. It also is a preview of what the U.S. regulatory body will be presenting to other leading countries at the G-20 meeting in April.
Economy Shrinks, Profits Drop
The U.S. economy shrank at the fastest pace since 1982 in the last quarter of 2008. According to the Commerce Department, corporate profits dropped $120 billion at the same time, with falling consumer spending and exports increasing the severity of the drop.
Another sign of the economic condition is the number of workers collecting state unemployment benefits, which rose to a record 5.56 million earlier in March, and new claims climbed to 652,000 last week.
Gross domestic product, the measure of total output of goods and services within U.S. borders, fell at an annual rate of 6.3 percent in the last quarter of 2008. The government estimates in February had marked the fall in fourth-quarter GDP at 6.2 percent and the modest revisions to the output estimates reflected adjustments to business inventories and investment figures. The economy expanded only 1.1 percent in 2008, the smallest advance since 2001. Private business inventories, revised to show a $25.8 billion decline, had previously reported a $19.9 billion drop, as business responded to the slump in demand by cutting output.
Business investment, typically made when companies are planning production increases, fell at a 21.7 percent rate, the biggest drop since the first quarter of 1975, from a previously estimated 21.1 percent contraction. Consumer spending dropped 4.3 percent. Consumer spending accounts for more than two-thirds of domestic economic activity. Exports were also down 23.6 percent.