Josh Rosner, a Managing Director at Graham Fisher & Company, an independent research for institutional investors in financial service assets, has some pretty strong words for the reform legislation proposed by the Obama Administration and now making its way to Congress. On Bloomberg, he said it favors large too big to fail institutions and hurts smaller community banks. In sum, he calls it “the single worst not-yet passed piece of legislation” he has ever seen in financial services. Pretty harsh words.
Tim Geithner defended the proposal to a skeptical Congress yesterday, saying that we need large institutions to compete internationally and that the companies should be regulated rather than broken up. When asked why Obama is not proposing that systemically dangerous firms be broken up, Rosner says it’s regulatory capture (something Arianna Huffington and Eliot Spitzer have argued for months).
Rosner also notes that the proposal increases the power of the executive branch giving them “unlimited authority,” which Congress pushed back on during Geithner’s testimony yesterday.
The most worrying charge that Rosner levels has to do with what he sees as an implicit government subsidy for TBTF institutions that puts them in a situation akin to Fannie and Freddie before the crisis. This gives them a large funding advantage over smaller firms, allowing them to generate excess profits and/or take higher risk.
See also “Guest Post: Conservatives and Liberals Agree: Proposed Bank Oversight Bill Will Make Things Worse” on Naked Capitalism.
Rosner’s video is below.