"This is an extraordinary time and the government has been forced to take extraordinary measures," Treasury secretary Tim Geithner said in his opening statement to the House Financial Services Committee today, where he is testifying along with Fed chairman Ben Bernanke about AIG, the toxic assets — sorry, "legacy assets" — program, and the general state of the economy. Going forward, Geithner would like to take even more extraordinary measures, measures that require extraordinary powers — specifically, the ability to seize non-bank financial companies like AIG. Currently, he said in the text of his opening statement, "the United States government does not have the legal means today to manage the orderly restructuring of a large, complex nonbank financial institution that poses a threat to the stability of our financial system." But he's hoping they will tomorrow!
The administration plans to send legislation to Capitol Hill asking for this authority this week. Which is not unreasonable.
Besides seizing a company outright, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit.
But Republicans are already getting their backs up about giving the federal government too much control, and we suspect this could turn into the next big fustercluck. House Minority leader John Boehner told Reuters today that Geithner's proposal was an "unprecedented grab of power." White House spokesman Robert Gibbs arguably made this worse when he defended it on CNN by saying, "This isn't anything crazy." Apparently he doesn't know that saying "I'm not crazy" is the best way to get everyone to question your sanity.