October 28, 2008
The Secret New Committee That Runs Finance
Posted by David Zaring

Treasury sent one of its people to address SIFMA today on the bailout implementation.  Among the standard litany of things the guy (he was an acting undersecretary, and a last minute fill-in for Paulson himself) noted was this:

In order to address the unprecedented and extraordinary disequilibrium and challenges that our financial markets have experienced, the President's Working Group on Financial Markets, or "PWG" as it is known, has been taking proactive steps to mitigate systemic risk, restore investor confidence, and facilitate stable economic growth.

What is this shadowy group?

The PWG may be our future. It was established in 1988 in response to the market break of 1987 by executive order, and includes (1) the Secretary of the Treasury or designee (as Chair); (2) the Chair of the Board of Governors of the Federal Reserve System or designee; (3) the Chair of the Securities and Exchange Commission, or designee; and (4) the Chair of the Commodity Futures Trading Commission, or designee; and their respective staffs.   

The group has recently emerged not just as a studier of prior crises, but as the focus of future efforts to coordinate financial regulation – making it the informal tip of the spear of Paulson-directed regulatory reform. The PWG, for example, has considered how the financial regulators can together promote investor confidence, track credit system issues (like pursuing on-line clearing and same-day trade comparison for all equity and derivative products), develop effective market controls such as trading halts in emergencies and how to deal with large and rapid unwinding of positions, and so on.

But more to the point, the current financial crisis has made reform more likely, but paradoxically reduced the ability of the current administration to shape that reform, because it has been so distracting. But with the PWG playing a role in the bailout itself, Paulson has done a little bit of regulatory reform in the way he likes - centralization, coordination, and one voice from the Fed, Treasury and the SEC - by fait accompli.

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