Making Sense

From the NYTimes:

The Treasury secretary, Timothy F. Geithner, outlined the plan Thursday before the House Financial Services Committee. He said the changes were needed to fix a badly flawed system that was exposed by the current financial crisis. Mr. Geithner, in his opening statement, called for “comprehensive reform. Not modest repairs at the margin, but new rules of the game.”

Included in the plan would be the establishment of one single agency “with responsibility for systemic stability over the major institutions and critical payment and settlement systems and activities.”

To that end, Mr. Geithner said: “Financial products and institutions should be regulated for the economic function they provide and the risks they present, not the legal form they take,” Mr. Geithner said. “We can’t allow institutions to cherry pick among competing regulators, and shift risk to where it faces the lowest standards and constraints.”

Geithner is absolutely right though the devil, as always, is in the details. Hedging aside, at least he is making the right noises. Timmy has dug himself into one helluva hole. Establishing an effective regulatory regime for non-bank financial firms would go a long way towards getting him out of it.