CNN correspondent Brianna Keilar, along with several other CNN correspondents and hosts and instances of CNN on-screen text, described Timothy Geithner's proposal for Congress to pass legislation allowing the federal government to take over failing nonbank financial institutions as “unprecedented.” In fact, former Treasury Secretary Hank Paulson and FDIC chairman Sheila Bair -- both Bush appointees -- stated in 2008 that the federal government needed and should have such power.
On the March 26 edition of CNN Newsroom, congressional correspondent Brianna Keilar falsely claimed that Treasury Secretary Timothy Geithner's proposal for Congress to pass legislation allowing the federal government to take over failing nonbank financial institutions was an “unprecedented ask” by Geithner. Similarly, during the March 24 edition of Situation Room, CNN repeatedly discussed Geithner's proposal while airing the caption “Unprecedented Request For Power; Admin. wants to regulate non-banks.” In fact, former Treasury Secretary Hank Paulson and Federal Deposit Insurance Corporation (FDIC) chairman Sheila Bair -- both Bush appointees -- previously stated that the federal government needed and should have such power.
Additionally, several CNN correspondents, anchors, and hosts have reported that Geithner had requested “unprecedented” power, but did not note Paulson's or Bair's comments.
During a November 20, 2008, speech, Paulson said that "[w]e need a mechanism, essentially an amendment of the federal bankruptcy system, for the orderly wind-down of such institutions," and that with such “wind-down authorities” as part of a “new framework,” “we could achieve again the proper balance between market discipline and regulatory oversight, and no institution should be deemed to be too interconnected or too big to fail.” From Paulson's remarks:
In the Blueprint for Regulatory Reform that we developed prior to this financial turmoil and released last March, and which has proven to be remarkably appropriate, we recommend a U.S. regulatory model based on objectives that better align the regulatory structure with the reasons why we regulate -- to ensure stability, safety and soundness and to protect consumers while also supporting innovation.
In our model, a market stability regulator would have authority to review any systemically important financial company, and to look for problems anywhere in the financial system in order to protect against systemic risk. Our continuing challenge has been what to do about non-depository institutions that may be too big or too interconnected to fail. We need a mechanism, essentially an amendment of the federal bankruptcy system, for the orderly wind-down of such institutions. Also, to ensure the market stability regulator can fulfill its role, large, systemically-important institutions, including hedge funds, should be required to have a charter that would permit some type of oversight.
Under a new framework, which includes market infrastructure, transparency and wind-down authorities, we could achieve again the proper balance between market discipline and regulatory oversight, and no institution should be deemed to be too interconnected or too big to fail.
Similarly, during a June 18, 2008, speech, Bair stated, “I believe that we need a special receivership process for investment banks that is outside the bankruptcy process, just as it is for commercial banks and thrifts,” adding that “the FDIC's authority to act as receiver and to set up a bridge bank to maintain key functions and sell assets offers a good model.” From Bair's remarks:
I believe that we need a special receivership process for investment banks that is outside the bankruptcy process, just as it is for commercial banks and thrifts. The reason goes back to the public versus private interest.
The bankruptcy process focuses on protecting creditors. When the public interest is at stake, as it would be here, we need a process to protect it. This process must achieve two central goals. First, it should minimize any public loss and impose losses first on shareholders and general creditors. Second, it must allow continuation of any systemically significant operations.
As I've previously suggested, the FDIC's authority to act as receiver and to set up a bridge bank to maintain key functions and sell assets offers a good model. A temporary bridge bank allows the government to prevent a disorderly collapse by preserving systemically significant functions. It enables losses to be imposed on market players who should be at risk, such as shareholders. It also creates the possibility of multiple bidders for the bank and its assets, which can reduce losses.
The authorities that the FDIC has are a good model, but there are still many open issues.
From the March 24 edition of CNN's The Situation Room:
CNN figures describing Geithner's proposal as seeking “unprecedented” power without noting Paulson's and Bair's previous comments include:
- During the 11 a.m. ET hour of the March 26 edition of CNN Newsroom, Keilar stated that Geithner was “asking for those unprecedented powers to seize and either wind down -- possibly wind down companies like AIG, these non-bank financial institutions, and do it in such a way that the FDIC seizes banks.” Similarly, in the noon ET hour of the March 24 edition of CNN Newsroom, Keiler stated that Geithner was “asking Congress to give the Treasury Department, to give the federal government, unprecedented power when it comes to dealing with companies like AIG, when it comes to selling off assets, when it comes to winding down a company.”
- On the March 24 edition of Lou Dobbs Tonight, Dobbs stated that Geithner had “made a pitch for even more power, expanded, unprecedented power that would allow the government to virtually shut down failing financial companies, such as AIG.”
- Congressional correspondent Dana Bash introduced her report on Geithner's proposal -- aired on the March 24 edition of Lou Dobbs Tonight and the 4 p.m., 5 p.m., and 6 p.m. ET hours of The Situation Room -- by stating: “The treasury secretary is trying to channel AIG anger into a new solution: Give him unprecedented power.”
- On the 8 a.m. ET hour of American Morning, White House correspondent Suzanne Malveaux said of Geithner's proposal, “All of this, [anchor] John [Roberts], unprecedented, but Tim Geithner will go before lawmakers and say this is necessary to make sure that this kind of abuse doesn't happen again.”
As Media Matters for America documented, during several reports on Geithner's proposal, CNN cited House Republicans' characterization of the proposal as a power grab, including House Minority Leader John Boehner's (R-OH) charge that the proposal constitutes “an unprecedented grab of power.” However, in its reports on the budget blueprint that House Republicans, led by Boehner, released on March 26, CNN did not note that Republicans also proposed giving the federal government authority to take over financial institutions.
From the 2 p.m. ET hour of CNN Newsroom on March 26:
KYRA PHILLIPS (anchor): If a company is too big to fail, it shouldn't be too big to regulate or too complicated or too well-connected or too sneaky. So says Treasury Secretary Tim Geithner, asking Congress to rewrite the rules of the U.S. financial system.
GEITHNER [video clip]: To address this will require comprehensive reform. Not modest repairs at the margin, but new rules of the game. And the new rules must be simpler and more effectively enforced. They must produce a more stable system, one that protects consumers and investors, rewards innovation, and is able to adapt and evolve with changes in the structure of our financial system. Our system, the institutions, and the major centralized markets must be strong enough and resilient enough to withstand very severe shocks and withstand the effects of a failure of one or more of the largest institutions.
PHILLIPS: CNN's Brianna Keilar on the Hill. Brianna, how'd the new proposals go over?
KEILAR: Well, key Democrats, Kyra, are onboard. But some Republicans saying they're afraid this proposal and multiple proposals by the Obama administration to reform these financial markets, they're afraid that it's a remedy that might ultimately kill the patient.
And that includes a proposal that we first heard of on Tuesday -- that unprecedented ask by the Treasury secretary to give -- for Congress to give the federal government the power to seize and perhaps wind down these companies like AIG. That was at the heart of the most contentious exchange of this hearing that we saw as this hearing wrapped up a short time ago. Let's listen.
[begin video clip]
REP. DONALD MANZULLO (R-IL): Do you realize how radical your proposal is?
MANZULLO: Oh, it's absolutely -- you're talking about seizing private businesses, and you don't consider that to be radical?
MANZULLO: If it's prudent and carefully designed, Mr. Secretary, then you would have the answers to some of my questions, such as what size business would be subject to this.
[end video clip]
KEILAR: You see there some Republican discomfort, Kyra, with just how involved the federal government could be getting here. Why are they concerned? Well, because they fear that with so much involvement, it could be overreaching, that ultimately, instead of just regulating, it could ultimately stifle the U.S. economy. We expect this to play out as this issue moves forward and they start talking about writing a bill, moving forward with votes on this, Kyra.
PHILLIPS: And we'll follow it. Brianna Keilar, thanks so much.
From the 11 a.m. ET hour of CNN Newsroom on March 26:
DON LEMON (anchor): It is a very busy day here in the CNN Newsroom, and we are monitoring a hearing right now. It's happening on Capitol Hill. That hearing is focused on how to prevent the current economic crisis from ever happening again.
There you see him right there, Treasury Secretary Timothy Geithner. He is presenting a plan to the House Financial Services Committee. He's calling for more government power to seize troubled financial firms.
[begin video clip]
REP. DAVID SCOTT (D-GA): This great expansion of power to seize non-bank companies, where in the federal government should that power rest? Should it be with you and Treasury, should it be in the Fed, or perhaps in FDIC?
GEITHNER: Well, what we're proposing to do is build on the model established for the FDIC for banks and thrifts. That model, we have a lot of experience with it. There is a whole range of important checks and balances in that system to limit discretion, so the existence of this does not increase moral hazard, as your colleague said.
And we think that model offers a lot of promise. And we're basically suggesting a model which would substantially rely on the FDIC itself to run this new regime. But you have to have some checks and balances in the system.
[end video clip]
LEMON: Now, here's what Mr. Geithner wants to do. He wants to completely overhaul how the government regulates financial firms. CNN's congressional correspondent, Brianna Keilar, following the hearing.
Brianna, he made big news on the Hill Tuesday. Now he's back at it again. We were talking here, saying he just should set up shop down there.
KEILAR: Yeah, twice in three days. He's quite the regular here on Capitol Hill, Don. And you could see he was answering questions there about his controversial proposal on Tuesday that he brought before this committee for the first time, asking for those unprecedented powers to seize and either wind down -- possibly wind down companies like AIG, these non-bank financial institutions, and do it in such a way that the FDIC seizes banks. That's very controversial, so he's answering questions on that today. But he is also talking about regulating -- regulating the markets.
And the headline today, in particular, one thing he is proposing, and that is starting sort of a position that is someone who would be a systemwide regulator who would look at the big picture. Because, Don, one of the big questions about this whole financial crisis is, how did no one -- you know, how did no one -- how was this missed? How did we not see this coming with these lending practices and all these foreclosures on the horizons leading to these toxic mortgage-backed securities, and then ultimately bringing the financial markets to the -- to its knees? How didn't we see this coming?
He's talking about establishing someone who would be able to see the risk and see the weaknesses, the point being to do it before it becomes a massive problem, as it is now, Don.
From the March 24 edition of Lou Dobbs Tonight:
LOU DOBBS (host): Good evening, everybody. The president's news conference will begin less than an hour from now. It comes just hours after Treasury Secretary Geithner and Fed Chairman [Ben] Bernanke went to Capitol Hill. There, they faced more stinging criticism for their handling of the banking crisis and the AIG bonus scandal.
But they also made a pitch for even more power -- expanded, unprecedented power that would allow the government to virtually shut down failing financial companies such as AIG. Now, the White House apparently trying to wrest control of the message and to deflect the outrage by putting President Obama in front of reporters tonight in a live, nationally broadcast news conference. This is the second of his now 64-day-long presidency. The economy, AIG, the president's new border protection initiative all on the agenda -- Dan Lothian with our report tonight.
DOBBS: Well, as Dan just reported, the Treasury secretary and the Fed chairman today asked Congress to give the president sweeping additional powers. They sat down in front of the House Financial Services Committee. There, they said the government should be able to take a troubled company such as AIG and shut it down. Dana Bash has our report from Capitol Hill.
[begin video clip]
GEITHNER: AIG highlights very broad failures of our financial system. [...] We came into this crisis without the authority and the tools necessary to contain the damage to the American economy.
BASH: Timothy Geithner wants Congress to grant him that same power over non-banking financial institutions like AIG that the FDIC has over banks -- the ability to take control of a failing company and do what it takes to reduce risks. Fed Chairman Ben Bernanke backed the idea, saying he would have had better tools to handle AIG's crisis and its controversial bonuses.
BERNANKE: This bonus issue would not have arisen because all of the contracts could have been adjusted.
BASH: In fact, Bernanke said when he learned of AIG's bonuses, he wanted to sue but was stopped by Fed lawyers.
BERNANKE: Connecticut law provides for substantial punitive damages if the suit would fail.
BASH: Bernanke and Geithner's new proposal was clearly intended to deflect outrage, but it didn't always work, like when this Democrat demanded a full list of companies taking taxpayer dollars that paid bonuses.
REP. BRAD SHERMAN (D-CA): Are you going to give us the chart, or are you going to hide the ball?
SHERMAN: Are you going to give us the chart?
SHERMAN: In other words, you won't commit to telling the American people how many folks at Goldman Sachs or AIG are going to make a million dollars this year?
[end video clip]
BASH: Now, the House Republican leader blasted Geithner for what he called a, quote, "unprecedented power grab." But, Lou, Democratic leaders, they pretty much said that they supported this idea, but you know, the big question is what is going to happen with rank-and-file lawmakers, because many of them say that they're a little bit wary about jumping into a Treasury proposal like this on a complex issue because they say they've been burned before. Lou?
From the noon ET hour of the March 24 edition of CNN Newsroom:
BETTY NGUYEN (anchor): And we've been listening to the hearing on Capitol Hill with Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke as they speak before the House Committee on Financial Services. It's an important one today as they delve into the AIG scenario -- what happened, why did it happen, how could it have been dealt with even better?
CNN's Brianna Keilar is outside the hearing room on the Capitol -- at the Capitol. And Brianna, it seems like, you know, the headline so far is, before we even discuss broadening the Treasury secretary's powers, let's find out what went wrong with AIG.
KEILAR: Sure. And that's really issue number one today in terms of the first issue they're dealing with, this residual outrage over the AIG bonuses. And then, overall, just the need to help AIG out considering what happened with that whole bonus debacle. So you've seen there Ben Bernanke and Tim Geithner defending exactly why AIG needed a bailout in the first place and talking a little bit about the bonuses as well.
But the real headline today, Betty, is that Treasury Secretary Tim Geithner, here in this hearing, asking Congress to give the Treasury Department, to give the federal government, unprecedented power when it comes to dealing with companies like AIG, when it comes to selling off assets, when it comes to winding down a company. And this is something, this request of Congress, it's already getting some pushback from Republicans, including the top Republican in the House, John Boehner.
Here's what he said even before these men came before this committee to testify.
BOEHNER [video clip]: This is an unprecedented grab of power. And before that occurs, there ought to be a real debate about whether we should give that authority to the Treasury secretary. We need to look at insurance operations, as an example, that are regulated by states. What interest would the Treasury secretary have here, and why would he want this power?
KEILAR: And some Republicans raising concerns with the Treasury secretary, if that isn't then ripe for some abuse of power, turning over too much control to the Treasury. Tim Geithner saying that's not a concern, what we're trying to do here is make sure that what happened with AIG doesn't happen again. That if there is a company like AIG, we will have more control when it comes to executive compensation and other things, so that we don't look back and say, wow, we really should have done something differently -- Betty.
From the March 24 edition of CNN's American Morning:
ROBERTS: As we said, the Treasury secretary is going to be back on Capitol Hill this morning, and CNN has learned that he is asking for more power over financial businesses which are currently subject to little or no regulation. CNN's Suzanne Malveaux broke some of the details overnight and joins us now live from the White House. So what's he going to ask Congress for today, Suzanne?
MALVEAUX: John, really the idea is that the government would have a lot more oversight in the financial industry -- really, some of those institutions that escape those big regulatory measures. And senior aides are telling us this morning that what Secretary Geithner is actually going to go before lawmakers, he is going to say that, “All institutions and markets that could pose systemic risk will be subject to strong oversight, including appropriate constraints on risk-taking.”
Now, specifically what are they talking about here? Well, there are three big things that the government could step in on. One of them is to sell or transfer company assets, very important aspect of this. The other thing that we've all been talking about over the last couple of weeks in light of AIG is renegotiating or dissolving executive compensation. And, finally, taking a look at these financial institutions and seeing whether or not there is any risky portfolios or trading that is going on that the government could step in and actually change the outcome.
All of this, John, unprecedented, but Tim Geithner will go before lawmakers and say this is necessary to make sure that this kind of abuse doesn't happen again -- John.