Share on Google Plus Share on Twitter Share on Facebook Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit Share on StumbleUpon Tell A Friend 1 (1 Shares)  
Printer Friendly Page Save As Favorite View Favorites View Stats   3 comments

OpEdNews Op Eds

Bush and Obama Administrations Both Violated Law By Refusing to Close Insolvent Banks

By (about the author)     Permalink       (Page 1 of 2 pages)
Related Topic(s): ; ; ; ; ; ; ; ; ; ; (more...) ; , Add Tags  (less...) Add to My Group(s)

Well Said 2   Must Read 1   News 1  
View Ratings | Rate It

opednews.com Headlined to H2 4/5/09

Become a Fan
  (5 fans)
- Advertisement -

Geithner's statements that he didn't have the power to close down the big banks is false. Moreover, Geithner and Paulson actually broke the law which requires the government to close down insolvent banks, no matter how big.

The Prompt Corrective Action Law (PCA) - 12 U.S.C. § 1831o - not only authorizes the government to seize insolvent banks, it mandates it.

As William K. Black - the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri - told Bill Moyers in their recent interview:

[Question] In other words, they could have closed these banks without nationalizing them?

[Black] Well, you do a receivership. No one -- Ronald Reagan did receiverships. Nobody called it nationalization.

[Question] And that's a law?

[Black] That's the law.

[Question] So, Paulson could have done this? Geithner could do this?

- Advertisement -

[Black] Not could. Was mandated ....

Black provided the historical background to the PCA in a little-noticed essay last month:

PCA's premise was that regulatory discretion led to cover-ups of failed banks and excessive losses to the taxpayers. The PCA solution was to require higher capital requirements and to mandate that the regulators take over troubled banks before they deteriorated to the point that the failure would impose a cost on the Federal Deposit Insurance Corporation (FDIC). PCA also recognized that failing bankers had perverse incentives to "live large" and cause larger losses to the FDIC and taxpayers. PCA's answer was to mandate that the regulators stop these abuses by, for example, strictly limiting executive compensation and forbidding payments on subordinated debt.

Black then pointed out how the Bush and Obama administration's agenda has been the exact opposite of that of the PCA, and that both administrations have blatantly violated both the letter and the spirit of the law:

The law mandates that the administration place troubled banks, well before they become insolvent, in receivership, appoint competent managers, and restrain senior executive compensation (i.e., no bonuses and no raises may be paid to them). The law does not provide that the taxpayers are to bail out troubled banks. Treasury Secretary Paulson and other senior Bush financial regulators flouted the law. (The Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) are both bureaus within Treasury.) The Bush administration wanted to cover up the depth of the financial crisis that its policies had caused.

Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth. He was supposed to regulate many of the largest bank holding companies in the United States. Far too many of these institutions are now deeply insolvent because the banks they own are deeply insolvent. The law mandated that Geithner and his colleagues place troubled banks in receivership long before they became insolvent. Why are the banking regulators, particularly Treasury Secretary Geithner, continuing to disobey the law?...

- Advertisement -

 

PCA's purpose is "to resolve... problems... at the least possible long-term cost to the [FDIC]." That means the least possible cost to taxpayers. Secretary Geithner's priority is [instead] protecting private shareholders....

Receiverships end unnecessary bailouts of private shareholders, reducing the cost to the FDIC, as the law requires. Receiverships place banks back in the hands of new shareholders. Geithner has so twisted the framing of this issue that he is warning that a cheaper, more effective means of resolving failed banks used under President Reagan is some alien form of socialism that President Obama must slay before it destroys capitalism. Geithner is channeling Rove when he conflates receiverships with "nationalization."

Next Page  1  |  2

 

George Washington


As a political activist for decades, I have rejoiced in victories for the people and mourned in defeats. I chose the pen name "George Washington" because - as Washington's biographies show - he wasn't a (more...)
 

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon


Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Top Financial Experts Say World War 3 Is Coming -- Unless We Stop It

Indonesian Health Minister Says Swine Flu Might Have Been Man-Made | Epidemiologists and Virologists Need to Weigh In

Obama Is Considering Doing Something Even Bush Didn't Try: "Preventive Detention" of People Who Will Never Get a Trial

How To Solve the Economic Crisis

The Four Reasons the Mainstream Media Is Worthless

5 Reasons that Corporate Media Coverage is Pro-War

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
3 people are discussing this page, with 3 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)
oh well, I guess there's nothing we can do abo... by eun suh on Sunday, Apr 5, 2009 at 7:15:35 PM
America gets rid of its crooks by giving them mone... by John Hanks on Monday, Apr 6, 2009 at 7:57:35 PM
Came across the Moyers/Black interview myself on a... by reasonableperson on Wednesday, Apr 8, 2009 at 11:39:40 PM