Geithner To Clip Hedge Funds

Après le deluge of economic ruin, along come the new regulations to make sure it never happens again. Treasury Secretary Timothy Geithner will propose a sweeping set of new rules today as he seeks to install greater oversight on risk-taking in financial markets, "pushing for tougher rules on how big companies manage their finances as well as tighter controls on some hedge funds and money-market mutual funds," writes the Wall Street Journal. On the heels of giving more power to the Federal Deposit Insurance Corp., Geithner is expected to advocate a new raft of regulations for large financial firms—including forcing them to hold more capital reserves—and handing more power to the Treasury to monitor emerging economic risks. The Treasury plan (subject to congressional approval) would give the government "vast new powers over 'systemically important' banks and other financial institutions that are so big that their collapse would jeopardize the economy as a whole," writes the New York Times. That would open up secretive hedge, private-equity, and venture capitial funds and other lending facilities that up until have avoided oversight—i.e., AIG, multibillion-dollar hedge funds like the Citadel Group, and private-equity firms like the Carlyle Group or Kohlberg, Kravis & Roberts—to governmental scrutiny. Needless to say the lobbyists are going to have a field day.

Even as Geithner prepares for a Wall Street backlash, the Obama administration already is catching flak from Europe. Yesterday, Mirek Topolanek, the Czech Republic’s prime minister and the current holder of the EU presidency, condemned American remedies for the global recession as “the road to hell,” the Financial Times reports. "The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign, and so on,” Topolanek railed at an EU parliamentary session. With President Obama about to embark on his first official visit to Europe, the remarks were seen as impolitic to say the least. "EU diplomats said it was the most extraordinary outburst from a political leader in charge of running the EU’s affairs since Silvio Berlusconi, Italy’s prime minister, caused uproar in 2003 when he likened a German socialist member of the European parliament to a Nazi concentration camp guard," the FT writes.

GM and Chrysler could yet get more loans to stave off bankruptcy, but they'll come with serious strings attached, including "sacrifices from their managements, unions and GM's bondholders," writes the WSJ. As President Obama's thrown-together auto task force finishes its crash course in auto industry finances and politics, it appears ready to offer up a staggered plan to get two of the Big Three back on their feet. That may involve handing out $22 billion more in loans—including $9 billion for the second quarter—that GM and Chrysler have requested. However, "the task force may not disburse new aid immediately, choosing instead to preserve that as leverage," writes the WSJ. The task force is in favor of a merger between Chrysler and Italy's Fiat SpA, but working out the greater complexities of America's drowning auto industry remains a puzzle, according to task force head Steve Rattner. "It's like a Rubik's cube, trying to untwist it and trying to get all the colors to line up," he says. Meanwhile Ford is in talks to offload its Swedish subsidiary Volvo, the BBC reports. According to reports in Swedish media, a number of Chinese firms are interested in buying Volvo, including Chery Automobile, Dongfeng Motor Group, and Chongqing Changan Automobile.

Is Big Blue preparing another round of job cuts? Sources tell the WSJ that IBM will lay off roughly 5,000 U.S. employees and transfer many of the positions overseas to India. The WSJ sees this as a continuing trend for IBM, which has been downsizing in the United States while steadily building up its ranks in low-wage countries. "Foreign workers accounted for 71% of Big Blue's nearly 400,000 employees at the start of the year, up from about 65% in 2006," the newspaper writes. All this could lead to yet another political mess for the Obama administration. The WSJ's "All Things D" blog writes that Big Blue has been angling for a piece of the administration's $30 billion proposed IT stimulus investment package, with IBM CEO Sam Palmisano promising the government such a sum would create 900,000 new high-tech jobs. "He didn’t say they’d be created in India," the blog muses in a post titled "IBM: The 'I' Stands for India." It's important to note IBM has not yet confirmed any job cuts. Still, the anger is evident. "It's all about greed," Lee Conrad, who is trying to organize unions within IBM, told Business Week. "They're moving work offshore to pay lower wages and lower taxes. IBM shouldn't have their hands on stimulus money if they're offshoring work."

Apparently, AIG bonus recipients aren't giving up their money so easily. According to the WSJ, Jake DeSantis, an executive in AIG's troubled financial-products division who publicly vowed not to return the bonus money, was greeted at the office yesterday with a standing ovation from fellow employees. (DeSantis plans to donate his after-tax proceeds of $742,000 to an unnamed charity; he is one of about five employees from the toxic AIG division that created this whole mess who intend to resign.) In all, five out of the top 20 AIG execs have not yet decided if they will be returning the bonus money, the newspaper reports. One thing is clear: AIG is having trouble holding on to top talent. In a separate article, the WSJ reports two top execs in a Paris subsidiary resigned, putting the stricken insurer on even shakier ground. "Their moves have left the giant insurer and officials scrambling to replace them to avoid an unlikely but expensive situation in which billions in AIG trading contracts could default," the newspaper writes.

And, finally, you can add the U.S. Postal Service to the line of outfits seeking government help. Postmaster General John E. Potter told Congress on Wednesday the financial situation is "critical." "We are facing losses of historic proportion," he told lawmakers. How bad is it? According to the Associated Press, "the agency lost $2.8 billion last year and is facing the likelihood of much larger losses this year, despite a rate increase scheduled to take effect May 11." One solution could be cutting Saturday mail delivery, which, Potter estimates, would save the agency $3.5 billion. Doing so would require a change in federal law, an unwelcome idea.