Treasury Secretary Tim Geithner and National Economic Council Director Larry Summers held a pen-and-pad briefing for reporters this afternoon on the new financial regulation reforms. The two officials didn't offer much clarification beyond the extensive details in the White Paper, although what they refused to be specific about -- how to determine what a standardized derivative is, who will regulate annuities (answer: many people) -- were as revealing as their recitations of mechanisms already detailed. What was most interesting was seeing the two work together; Geithner clearly enjoyed having Summers with him and they had a good back-and-forth schtick going. Summers is much more politically savvy than Geithner: At one point, when discussing the new registration requirements for hedge funds (which seem like weak tea), Geithner was asked whether any hedge funds would be considered "Tier 1 Financial Holding Companies" -- firms that create systemic risk. Geithner immediately said "no," which raised eyebrows around the room, especially on the day that Blackrock, a financial management firm with ties to the government, announced an acquisition that has it managing $2.7 trillion, making it the largest fund in the world and, I think, probably a Tier 1 FHC. Summers interrupted at this point to note that Geithner was only saying "no" because hedge funds had not yet registered with the government, so it is impossible to say definitely if any are Tier 1 FHC until the new changes are made. "I accept the amendment," Geithner said, and thus likely avoided some negative press about laxness around hedge fund regulation.Geithner did offer a good discussion of "too big to fail" in response to a question from a reporter who suggested that the plan got at the problem "obliquely" by adding new restrictions to the Tier 1 FHCs. The reporter was suggesting that the new restrictions might discourage firms from becoming Tier 1 FHCs, solving the problem of being too big to fail. Geithner ignored that suggestion and argued that his plan addresses that issue directly through the various capital requirements, market strengthening tools and transparency rules, but especially through the new resolution authority, where the Treasury and the Fed would make decisions about which firms would get unwound, and whether the FDIC would do it (in most cases) or... someone else, possible the Fed, will do it. (They weren't too clear on that point.)But mainly, their message was not to separate any one part of the plan from it's overall context; each mechanism plays into another one to make the entire regime work, or so they hope. This may be why, as Noam Scheiber has noted, the administration chose to handle a lot of the details on this project themselves rather than tossing congress the task. -- Tim Fernholz
