Tuesday, May 18, 2010

Big Brother is Watching

I love reading government bills. I really do, because as I slog through thousands of pages of gibberish, I get a real sense of where we are headed as a country. For instance, take amendment 3739 to Senate Bill 3217. The amendment--which is presented as a replacement for the bill, offered by Harry Reid (D NV) on April 29, 2010, defines its intentions in the first paragraph, "To promote financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail,' and to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes." It is the "other purposes" that really shine through in this 1566 page piece of bloated legislation.

In its first three hundred pages, SB 3217 (as presented in the amendment) creates at least 4 new regulatory authorities. We have the Office of National Insurance which will work with state regulators to oversee all lines of insurance in the United States except health insurance--which is specifically excluded. This office will "receive and collect data and information on and from the insurance industry and insurers, enter into information sharing agreements, analyze and disseminate data and information, and issue reports regarding all lines of insurance except health insurance."

We have the Financial Stability Oversight Council which will be established effective the date of the enactment of the new financial services bill. The Council will be comprised of the Secretary of the Treasury, who will be the chairperson, the Fed Reserve Chair, the Comptroller of the Currency, the Chairperson of FDIC, the Chairperson of the Commodities Future Trading Commission, the director of the Bureau of Consumer Financial Protection, which the bill also creates, the Chair of the SEC, and one other member appointed by the President. The board members will serve six year terms.

We also have the Office of Financial Research, which will conduct research on insured depository institutions (banks) and insurance companies. Section 155 establishes the financial research fund which is to be a separate fund within the United States Treasury. All monies coming into the Office of Financial Research shall be deposited into the fund. Amounts over the amount that the Director of the Office of Financial Research believes are necessary to run the agency may be invested with the consent of the Secretary of the Treasury. Interestingly, the bill states that "Funds obtained by, transferred to, or credited to the Financial Research Fund shall not be construed to be Government funds or appropriated monies." Where is all of this money going to come from? For the first two years, the Board of Governors of the Federal Reserve is to allocate enough monies to cover the office's expenses, but beginning two years after the law goes into effect, the Treasury Secretary is going to establish a schedule of fees for bank holding companies and non bank financial companies. It is interesting that the government is planning its financial portfolio for an agency that does not yet exist at a time when so many Americans can't even find a job.

Moving on, SB 3217, as amended, creates an Orderly Liquidation Authority Panel. The Orderly Liquidation Authority Panel consists of 3 judges from the United States Bankruptcy Court in Delaware. These are appointed by the Chief Judge of the U.S. Bankruptcy Court in Delaware, who is supposed to take into consideration the financial expertise of each judge in making his appointments.

The Orderly Liquidation Authority Panel is designed to speed up the process of getting rid of lenders who could be a danger to society. Here's how it works: the Secretary of the Treasury determines that a financial company is in default or in danger of default. The Treasury Secretary then petitions the Panel for an order authorizing the Secretary to appoint the FDIC as the receiver. The petition is to be strictly confidential--in fact the penalty for disclosing a petition or pending court proceedings is up to a $250,000 fine or 5 years in prison or both. The company in jeopardy is to be notified, and they have the right to oppose the petition. The Panel is to review the Secretary's petition and supporting evidence, which is supposed to be "substantial", that the financial company is in default or in danger of default. Within 24 hours, the Panel is to make a decision about whether to take the company into receivership. The Panel's decision is final, although it can be appealed through the Court of Appeals and within 30 days of their ruling can be appealed to the Supreme Court of the United States if they choose to hear the case. However, SB 3217 states specifically that the Supreme Court is limited in their ruling as to whether the Secretary's determination that the covered financial company is in default was supported by substantial evidence.

The bill states that no stay or injunction pending appeal is possible. If the Panel's finding is that the financial institution must be turned over to the FDIC, there is no recourse.

If the Panel finds that the Secretary of the Treasury did not provide substantial evidence that the financial institution is in danger of default, within 24 hours they are to provide him with a written statement of each reason that it was not supported and allow him to immediately amend his petition and refile.

Creating an enormous bureaucracy and giving Tim Geithner and whoever his successors may be life and death power over financial institutions may be part of the "other purposes" as defined in the first paragraph of the bill, but it certainly is not part of a system which fosters respect for free enterprise and private ownership of business.

No comments:

Post a Comment