More power sought to rein in big companies

March 26, 2009|By Jim Puzzanghera | Jim Puzzanghera,Tribune Washington Bureau

WASHINGTON - The Obama administration is gearing up for an aggressive new push to regulate large corporations - including insurance companies, hedge funds and private equity firms - that have the potential to wreak havoc on the nation's economy should they fail.

The move, led by Treasury Secretary Timothy F. Geithner, aims to reverse decades of deregulation that has allowed financial companies in particular to operate without significant federal oversight.

The effort was triggered mainly by increasing frustration over the government's inability to rein in such companies as American International Group Inc., the insurer that has received federal commitments of up to $182.5 billion because it was deemed too big to fail.

On Wednesday, Geithner disclosed general outlines of the initiative, the final piece of a multipronged attempt to pull the country out of the recession. He is expected to provide more information to Congress on Thursday.

The administration also wants to assure allies that the United States is serious about calls for tighter rules and regulations over the financial system. Next week, President Barack Obama and leaders of the 20 largest economies will meet in London to work on a plan to deal with the global recession.

The goal of tighter regulation is "to help ensure that this country is never again confronted with the untenable choice between catastrophic financial risk and massive taxpayer bailouts," Geithner said in a speech Wednesday in New York to the Council on Foreign Relations.

"We're moving now to ensure that we're equipped both in the future and as soon as possible with a more modern framework of regulation to ... leave us less vulnerable to these kind of things in the future."

In September, the Federal Reserve used extraordinary powers to lend AIG $85 billion, the first installment of what has become by far the largest government bailout of the financial crisis.

Geithner and others have noted that federal regulators have the power to seize failing banks and sell off their assets but have no power to do so with nonbanking financial companies such as AIG.

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