Ask the U.S. Treasury: A Call for Fools' Questions

Investor protection and financial reform: These are the timely topics of heated debates among Washington lawmakers and individual investors here on Fool.com.

Later today, The Motley Fool will make Main Street's concerns heard when we ask Deputy Secretary of the Treasury Neal Wolin (Timothy Geithner's No. 2 in the Treasury Department) the questions you want answered.

This is part of our effort to continue to make sure our community of Fools has a say on legislation that affects our portfolios. And the Treasury has reached out to us to hear what Fools have to say. So -- as we did in talking to the White House two weeks ago -- we want your questions about investor protection and financial reform.

A call for Fools' questions
Last week, the House Financial Services Committee voted in favor of the Consumer Financial Protection Agency Act of 2009; this week, the committee is tackling legislation on investor protection and the capital markets.

Some of the proposed issues include:

  • Establishing a fiduciary duty for brokers, dealers, and investment advisors
  • Protecting whistleblowers
  • Creating a permanent investor advisory committee
  • Dealing with systemic risks posed by securitization and the phenomenon of "too big to fail"
  • Making it easier for the government to seize and clean up failing non-bank financial institutions such as the next Lehman Brothers or AIG (NYSE: AIG  ) , similar to the process currently used for failing retail banks
  • Tougher oversight of methodologies, corporate governance practices, and conflicts of interest at ratings agencies like Moody's (NYSE: MCO  ) , Fitch, and McGraw-Hill's (NYSE: MHP  ) Standard & Poor's
  • Bringing private pools of capital under a regulatory eye
  • Further empowering the SEC (and increasing the agency's funding)

You can read more about the proposed legislation here and here. Please post your comments about the legislation in the section below -- we'll need questions by 5:30 p.m. ET today.

At The Motley Fool, we pride ourselves on being advocates for shareholder rights. That's a big reason why the White House asked for feedback from the Fool community, and it's why the U.S. Treasury wants to field our Foolish community's questions about financial reform. Let your voice be heard -- post a comment below. You can read about the Fool's disclosure policy here. Moody's is a Motley Fool Stock Advisor and a Motley Fool Inside Value recommendation.


Read/Post Comments (16) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 26, 2009, at 3:45 PM, rd80 wrote:

    1. When is Treasury going to start divesting the bank stock warrants obtained in the TARP Capital Purchase Plan?

    Recommend they be broken in to lot sizes that allow individual investors to participate and sold in an open public option. There is no reason that the investment banks be the only ones able to participate. If they can't do it through TreasuryDirect, put 'em on eBay.

    2. Same as 1. for the Citi common just received in the preferred conversion.

    3. I don't see Credit Default Swaps on the bulleted list. Are they going to be regulated as insurance products? (They should be)

  • Report this Comment On October 26, 2009, at 4:39 PM, TMFDiogenes wrote:

    1. Regarding systemic risk, is there any thought being given to separating commercial banking and proprietary trading? My understanding is that instead of bringing back something like Glass-Steagall, we're considering having higher capital requirements for “riskier” trading. If that's the solution to the problem of bad bets blowing up deposit accounts, how can regulators be confident they can accurately measure risk when banks and ratings agencies can’t even do it?

    2. Even if they had the authority, seizing a C or a BAC or an AIG in itself could cause the system to collapse. The problem isn't just authority. It's size and interconnectedness. Would a systemic regulator be empowered to ban instruments that are a) unpredictable, and b) dangerous if they go wrong?

    3. How do we plan on reducing regulatory capture and the revolving door between Wall Street and Washington? They are potential conflicts of interest. Have we considered a cooling off period so regulators don't feel influence from industry mindsets and financial reward?

  • Report this Comment On October 26, 2009, at 4:48 PM, AbstractMotion wrote:

    An overview of what's in the social security trust fund asset wise would be wonderful.

  • Report this Comment On October 26, 2009, at 4:52 PM, TMFRoyal wrote:

    I agree with TMFDiogenes on Point 3: How are we going to avoid regulatory capture? We previously had laws on the books that prevented snafus like the one we've experienced. This is a fundamental principal-agent problem that needs to be addressed or all the laws in the world won't save us.

    Also, is the administration going to have the political capital to deal with the issue of securitization? Much securitization has done an end-run around contract law, and we need a legal framework that provides needed legal supports for counterparties such that they are not defrauded. How is the administration going to promote laws that establish a legal framework for securitization or is the alternative to make securitization illegal?

  • Report this Comment On October 26, 2009, at 4:54 PM, TMFKopp wrote:

    1) Too big to fail is my number one issue. They were decrying this in Washington not all that long ago, but the end result has been a select few banks getting even bigger than they once were. So the question is a) what do you now do about these institutions that are too-bigger-to-fail? and b) what kind of regulations do you put in place to avoid new banks joining the too-big-to-fail list?

    2) Disclosure, disclosure, disclosure. A look at JPMorgan's most recent results show that the bank is still doing pretty abysmally on the banking side, but is raking it in with trading and proprietary investing. Should big banks like this be able to shroud the activities that are earning these massive sums of money? Not only is this a regulatory pitfall -- are they doing something that could imperil the financial system? -- but it's also an issue for investors. Currently an investor would have to look at those JPMorgan results and be satisfied with the conclusion, "well, they're making money somehow..."

  • Report this Comment On October 26, 2009, at 5:17 PM, PerfectlyLegal wrote:

    1) Will you break up banks and other institutions that are too big to fail? It seems they should be disassembled for the good of the Republic. To do so hurts very few people while helping many, in addition to being both safer and more just than the current approach of haphazard encroachment into the private sphere.

    2) Will all derivatives contracts be traded in a single, transparent exchange? This seems essential.

    3) The Treasury should offer an annual assessment of the role of government guarantees in the marketplace, and their estimated dollar magnitude both as liabilities and concerning their positive effects on trade, spending, et cetra. This would include not only the alphabet soup of Treasury conduits to the banks, but the entire governments guarantees - Sallie Mae and friends, the Social Security and Medicare systems, and military spending. This would promote clarity of thought amongst our nation's bureaucrats, economists and businesspeople.

  • Report this Comment On October 26, 2009, at 5:28 PM, outoffocus wrote:

    I have some questions.

    1.) Do any of you people have any freaking idea what you're doing?

    2.) Is it possible to get someone in the Treasury who DOESNT have ties to wall street?

    3.) Will we every get a head of Treasury that will actually do what's best for America in the LONG TERM?

    4.) Does anyone in the Treasury know how to read a balance sheet?

  • Report this Comment On October 26, 2009, at 5:30 PM, globalsailor wrote:

    It would make sense that you would dismantle any company that is too big to fail because they would be considered a monopoly. However, sometimes you just have to let them die. Nonetheless, if there is going to be new legislation better to limit leverage than size.

  • Report this Comment On October 26, 2009, at 5:34 PM, pohick2 wrote:

    why has the Treasury not proposed or implemented a RFC or RTC to buy the troubled assets, and unwind those assets, and get to the bottom of the fraud (from the borrowers and loan agents)?

    what fraction of the ongoing foreclosures could be refinanced? (80%?) (the IndyMac experience?)

    is the high rate of foreclosures a sign of failure of the banking system?

    will the Treasury be investigating the ongoing bank and loan collectors' ongoing bad business practices?

  • Report this Comment On October 26, 2009, at 5:43 PM, Melaschasm wrote:

    Will the FDIC charge much higher rates in the future, so that we can let big banks fail, while still protecting savings & checking accounts?

    Will the Federal Reserve require a much large slice of bank assets in the future, so that they can absorb larger losses without printing money?

  • Report this Comment On October 26, 2009, at 6:06 PM, kulkano wrote:

    How are you going to prevent high frequency trading and other such practices which is hugely in favor of big trading firms instead of small independent investors.?

  • Report this Comment On October 26, 2009, at 6:11 PM, TMFBrich wrote:

    Adding in a question we received via email:

    Until Lehman Brothers collapsed in September of last year, it took 5,012 days to double the monetary base and aggregate reserves of depository institutions. After the Lehman Brothers collapse, it took 112 days to double the size of that measure. Thus, the pace of bank reserve expansion accelerated by a factor of 45 to 1. What role did the Treasury play in this unprecedented monetary expansion? And what role will it play in assisting the Federal Reserve to reverse it? (The data supporting the above 45-to-1 acceleration are posted at http://images.moneyandmarkets.com/1514/monetary-reserves-PDF...

  • Report this Comment On October 26, 2009, at 6:12 PM, TMFBrich wrote:

    And posting one more question received via email:

    With the increase in debt our country is facing, what percentage of it is being paid by borrowing from other countries such as China and how much is being paid by printing more money? How much more can we afford to borrow?

  • Report this Comment On October 26, 2009, at 6:12 PM, jaketen2001 wrote:

    What I really hear every time I hear a new acronym for something is this: there is a government agency that is clearly already supposed to regulate this, but it doesn't because it is fully compromised. How about instead of growing government we just invigorate the government that is already being paid for?

    So a question,Will the government lock out any currently participating bail out institutions from bail outs in the future?

    Can we afford another round of bailouts?

    Will we reinstate the Glass-Stegall act which would have seemed to avoid most of this crisis?

    Can we reduce naked short selling?

    Are there any types of financial instruments that you think should be eliminated?

    Can anything really change if you do not break up investment and retail banking and or eliminate certain types of exotic financial contracts?

    Is Treasuries objective to just do a better job of oversight of the financial system as it exists today? Is that a reasonable premise?

    Will Treasury be drafting its own proposals in its own words, or will drafts be coming in from sources outside the government?

    Is it really an unreasonable premise to think about seizing a BAC or C, cutting the retail operation out, and letting the rest of it fail while the retail portion was protected?

  • Report this Comment On October 26, 2009, at 6:13 PM, TMFBrich wrote:

    That's a wrap, Fools. Thanks for all your questions. Tomorrow morning we'll share the answers from our q&a with Deputy Secretary of the Treasury Neal Wolin.

    Foolish best --

    Brian Richards

  • Report this Comment On October 26, 2009, at 9:20 PM, rd80 wrote:

    "An overview of what's in the social security trust fund asset wise would be wonderful."

    AbstractMotion - The assets in the SS trust fund are entirely a special class of off balance sheet Treasury bond. When the SSA needs to tap the trust fund, they will start cashing those bonds in with the Treasury Dept.

    Whether or not there's any actual value in the SS trust fund is a discussion for another thread.

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