WASHINGTON – The top U.S. securities regulator said Thursday the government must start to build an “exit strategy” that includes taxpayer protections for its massive financial rescue plan.
“Having got the government so deeply involved in so many private financial institutions, I believe we must now begin to build a framework for our exit strategy from this myriad of new programs and commitments,” said Securities and Exchange Commission Chairman Christopher Cox.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., made the same point earlier this week, and lawmakers are starting to press the administration for an exit strategy explanation.
The SEC isn’t directly involved in the government’s multitrillion-dollar bailout efforts but oversees brokerage and securities operations of the big banks that have received billions in taxpayer funds.
The government’s exit strategy “should be consistent with the fundamental policy objectives of the interventions themselves, and also with the protection of taxpayers,” Cox said in his address to a gathering of Women in Housing and Finance and the Exchequer Club, two Washington groups.
“Even though we are on the front end of what are multiyear government investments, guarantees, and conservatorships, it is vital to understand where we are headed, or else we will never arrive at the intended destination of returning these institutions to fully private ownership and financing,” he said.
The unprecedented government intervention — including taking major stakes worth tens of billions in big U.S. banks — could hurt the SEC’s enforcement and regulatory efforts by breaking down the customary arm’s length relationship between the government and the business that it regulates, Cox said.
“When the government becomes both referee and player, the game changes rather dramatically for every other participant,” he said.
The government guarantees and investments extended under the rescue program now include $250 billion set aside for the Treasury to buy stock in U.S. banks, hundreds of billions in aid to giant financial institutions, and hundreds more billions in special lending facilities to banks.
The potential cost for the government’s efforts to contain the financial crisis now approaches $7 trillion and is climbing. That figure includes large commitments of funds by the government to guarantee certain debts, although those funds may never actually be spent. But still, the overall figure reflects the huge liabilities the government is taking on in response to the meltdown.
The amount of taxpayer money that has been committed in the past few months “is far more, even in inflation-adjusted dollars, than we spent fighting all of World War II,” Cox said in his speech.