Corporate Regulation
Government policies that restrict or liberate companies are often at the core of economic policy. The debate over whether government regulation or deregulation will more successfully facilitate long-term growth will continue to be debated. For now, we will ask how economic policies affect the relationship between the public and private sectors.

Each of the policies that addresses this issue and their proposed steps are below:
Treasury Executive Pay Restrictions proposed by U.S. Treasury Department

The policy sets discrete strings on the corporate assistance that it continues to allot under the Troubled Asset Relief Program (TARP).


2009 Financial Stability Plan proposed by U.S. Treasury Secretary Timothy Geithner
The financial stability plan sets conditions and restrictions on public monies to be invested in the financial sector.  First, the plan seeks to promote and later implement more stringent disclosure requirements for financial institutions receiving public investment hereafter.  The new disclosure rules will be designed to more accurately gauge the value of bank assets. 

Additionally, banks seeking public funding will need to submit an application for government approval that outlines how the bank plans to use the requested funds.

Banks will also be required to outline before and after they receive funding how they intend to use their public investment to increase lending.  If banks receive public funding from any of the planned funds, they will be forced to publicly file monthly reports outlining how their lending increased.

Banks receiving funding will be largely prevented from paying dividends or acquiring “healthy firms.”  They will also be mandated to participate in the plan’s foreclosure mitigation program and abide by the previously outlined executive pay restrictions.


Economic Recovery Plans proposed by Treasury Department, Congress, Economists
Supporters of the strings attached to the bail-out money argue that a lack of regulation was responsible for financial decline in the first place.  It was the absence of government oversight that allowed banks to provide sub-prime loans and offer volatile mortgage-backed securities.
For those favoring a laissez-faire regulatory strategy, the government's regulations on how bail-out money can be spent are regressive.  They will detract from businesses' freedom to set their own policies and pursue their own strategies. 

Making Banking Boring proposed by Paul Krugman, The New York Times
Though Krugman does not specifically indicate the regulations that would lead to more boring banking, it is clear that three types of actions must be more tightly regulated:
 
1. The types of financial products that banks can create and offer must be more transparent and simple so that their risk can be moderated and value more clearly known.
 
2. The organization and interaction of buy-side and sell-side financial institutions must be more closely regulated in order to ward off threats of market manipulation and speculation.
 
3. The potential compensation for those in the financial industry must be limited to the point that their incentive to take unduly dangerous risks is controlled.  Krugman indicates that the policy will result in bankers that are paid less.

"Clean Up The Toxic Asset Mess" proposed by Center for American Progress
The CAP plan would promote transparency among the financial industry and between the financial actors and the public.  CAP proposes that the plan outline performance benchmarks for Public-Private investment vehicles.  The plan would also restrict the amount of leverage that the PPIP could support when financing debt.

A Progressive Vision for the Antitrust Division of the Justice Department proposed by David Balto, the Center for American Progress
The proposed antitrust enforcement would theoretically prevent powerful firms from forming cartels, dominating the market or otherwise engaging in practices that manipulate the market.  The new rules would provide a framework for challenging the emergence of practices that obstruct market forces and innovators. More specifically, the proposal opens up new and old legal avenues to challenge emerging cartels and prevent the emergence of prospectively dominant firms.

Flexicurity proposed by Denmark, Prime Minister Poul Nyrup Rasmussen
Denmark's flexicurity labor policy implements relatively few regulations on corporations vis-a-vis hiring and firing.  In lieu of strong regulations on companies to provide worker security, Denmark uses tax revenues to cast a worker safety net.

Retirement Security for American Families proposed by President Barack Obama, The White House
The policy does not impose new regulations on corporations.  Instead, it promotes libertarian paternalism, a position that uses default options and other "nudges" to promote wise decision-making.  The policy seeks to make it simpler for individuals to save more and prepare for retirement.

A Modern Glass-Steagall: Addressing 'Too Big to Fail' proposed by Paul Volcker, Former Chairman, U.S. Federal Reserve
In order to reduce the Federal Reserve's burden in supporting institutions that are "too big to fail," Volcker argues that commercial banks and investment houses should be separated. The Federal Reserve can insure deposits in commercial banks, but is not liable for the failure of investment houses. Th proposed regulation would prevent the two types of institutions from coexisting under the same corporate banner. Under Volcker's proposal, the Federal Reserve would maintain its regulatory responsibility, centralizing management therof under a new Vice Chairman.

Wall Street Reform and Consumer Protection Act of 2009 proposed by Rep. Barney Frank, House of Representatives
The House has argued that this measure represents the most sweeping regulation of the financial industry since the New Deal. It establishes regulations for over-the-counter derivatives, while creating an inter-agency council to guard against systemic risk. It also creates a Consumer Financial Protection Agency that would have the authority to regulate financial sector abuses, and a Financial Stability Board that would identify and seek to regulate firms deemed ‘too big to fail.’ It would also begin to regulate the insurance industry as it relates to the financial sector. The legislation will focus more regulatory power in an inter-agency body chaired by the Treasury Secretary, and in the Federal Reserve Board, which will be charged with handling financial crises.

The Volcker Rule proposed by President Barack Obama, The White House
The Volcker Rule would prohibit commercial banks from trading for a profit as a hedge fund or private equity fund. The government seeks to institute the prohibition in order to reduce the size of individual financial institutions, and the relative risk that the government bears as a result of banks’ poor decisions.
 

Coming Soon
Re-imagining Community Colleges (CAP) in Education by Center for American Progress



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Policies Related to this Issue
Treasury Executive Pay Restrictions proposed by U.S. Treasury Department
2009 Financial Stability Plan proposed by U.S. Treasury Secretary Timothy Geithner
Economic Recovery Plans proposed by Treasury Department, Congress, Economists
Making Banking Boring proposed by Paul Krugman, The New York Times
"Clean Up The Toxic Asset Mess" proposed by Center for American Progress
A Progressive Vision for the Antitrust Division of the Justice Department proposed by David Balto, the Center for American Progress
Flexicurity proposed by Denmark, Prime Minister Poul Nyrup Rasmussen
Retirement Security for American Families proposed by President Barack Obama, The White House
A Modern Glass-Steagall: Addressing 'Too Big to Fail' proposed by Paul Volcker, Former Chairman, U.S. Federal Reserve
Wall Street Reform and Consumer Protection Act of 2009 proposed by Rep. Barney Frank, House of Representatives
The Volcker Rule proposed by President Barack Obama, The White House