How Little We Know: The Challenges of Financial Reform

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Original content Bob DeMarco, All American Investor

Geithner to Face Congress

Treasury Secretary Timothy Geithner is scheduled to face Congress today and again on Thursday.

Today, Geithner is likely to be grilled on the handling of the AIG bonuses and the new Public Private Investment Program (PPIP). Congress is certain to be in a tizzy about the plan's loan structure, particularly the granting of non-recourse loans to participating hedge funds.

Given the strong positive reaction in the stock market, the House of Representatives Financial Services Committee is likely to take a less adversarial tone then it might have last week.

On Thursday, Geithner will appear in front of the same House of Representatives Financial Services Committee. The hot scheduled topics is "systemic risk". Sure to be a hot potato in today's environment.

The discussion and debate about systemic risk will include ideas and plans about how large financial institutions should be regulated in the future. This is sure to develop into a turf war. The remedy could be as simple as giving additional authority to existing agencies. Or, given congresses penchant for creating new entities, spending money, and creating jobs to help keep themselves in office a new kind of super agency could be on the table.

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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

"We would be making an error if we were content to look solely at financial markets," she said. She deplored huge debts that governments are accumulating to spend their way out of the present crisis. But she said she recognized, for the moment, that "there is no other possibility."

Sarkozy, Merkel, Blair Call for New Capitalism

The head of Europe's biggest economy said Thursday that world leaders should be looking at the massive U.S. deficit and other economic imbalances, not just problems caused by financial markets, as they debate a new global order.

Speaking at a conference in Paris on the future of capitalism, German Chancellor Angela Merkel singled out the American budget deficit and China's current account surplus -- the difference between exports and imports -- as problems upsetting the global economy.

"We would be making an error if we were content to look solely at financial markets," she said. She deplored huge debts that governments are accumulating to spend their way out of the present crisis. But she said she recognized, for the moment, that "there is no other possibility."

A Congressional Budget Office report estimates that the U.S. federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year -- and that is before President-elect Barack Obama's sweeping stimulus package is calculated.

European governments have agreed to be flexible about budget rules that limit deficits to 3 percent of gross domestic product as recession bites.

Merkel said the International Monetary Fund has not managed to regulate global capitalism, and she called for the creation of an economy body at the United Nations, similar to the Security Council, to judge government policy.

French President Nicolas Sarkozy, leading the two-day conference with former British Prime Minister Tony Blair, blamed financial speculators for encouraging a system fueled on debt.

He called financial capitalism based on speculation "an immoral system" that has "perverted the logic of capitalism."

"It's a system where wealth goes to the wealthy, where work is devalued, where production is devalued, where entrepreneurial spirit is devalued," he said. But no more: "In capitalism of the 21st century, there is room for the state," he said.

Governments around the world have had to step in to rescue credit-starved banks and financial institutions from collapse. They are also pumping billions of euros into their economies to encourage growth.

Measures will be taken by global leaders meeting in London on April 2, Sarkozy promised, urging the U.S. to join the international consensus. Blair called for a new financial order based on "values other than the maximum short-term profit."

"The greatest entrepreneur I had the chance to meet was passionate about what he had created, not what he had accumulated," he said.

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URL: http://www.cnbc.com/id/28557738/