2009-03-18 By Roger Runningen March 18 (Bloomberg)
We already have such an "agency" established pursuant to Article I Section 8 of the U.S. Constitution. It's called "Bankruptcy Court". (Just what do they teach at Harvard's law school these days?) The OTS is, or was, to AIG as the FDIC is to banks -- that's part of the Executive Branch, Mr. President. (Just what do they teach "community organizers" these days?) Except the OTS is not the liquidator of holding companies, nor is the FDIC nor Fed as that's the Bankruptcy Court's job, just as it is for bank holding companies (but not banks), insurance holding companies (but not insurers), securities holding companies, and just about every other kind of corporation. The reason we don't have a regulator specifically for "bailouts" is because the federal govt cannot, and therefore should not, be doing them (see Amendment 10 to the Constitution -- just what do they teach ... nevermind).
If he wants to do something constructive he should amend section 13(3) of the Federal Reserve Act to create a "legal lending limit" for the Fed. The formula for commercial banks used to be 10% of capital but was raised several years ago to 15% on unsecured and 25% on secured credits. I especially like the feature, as applied to commercial banks, of making bank directors personally liable for any loans in excess of the legal limit, although apparently that varies by state. That might focus the minds of Geithner, Paulson, & Bernanke a little better. ASAP, please, as there's no provision in the Bankruptcy Act applicable to the federal govt itself (see Article VI of the Constitution for precedent). As Walter Wriston put it so bluntly, "Countries don't go bankrupt." That's because we taxpayers have unlimited liability -- so why not these White House, Treasury, and Fed rookies, too? That'd teach 'em!
JRB
3/18/09
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