Washington, Mar 3 (IANS): US Treasury Secretary Timothy Geithner has cautioned against the perils of "financial crisis amnesia" in the wake of complaints from those attempting to weaken or repeal Wall Street reforms.
Geithner recalled that four years ago he received an urgent call from the CEO of Bear Stearns informing him that they planned to file for bankruptcy next day, reported Xinhua.
"Bear Stearns was the smallest of the major Wall Street institutions, but it was deeply entwined in financial markets and had the perfect mix of vulnerabilities. It took on too much risk. It relied on billions of dollars of risky short-term financing. And it held thousands of derivative contracts with thousands of companies," Geithner said in an article carried on the Wall Street Journal Friday.
"There was no memory of extreme crisis, no memory of what can happen when a nation allows huge amounts of risk to build up outside of the safeguards all economies require," noted the article.
The financial regulation firewalls four years ago were tragically antiquated and weak. Neither the Federal Reserve, nor any other federal agency, had the necessary comprehensive authority over investment firms like Bear Stearns, insurance companies like AIG, or the government-sponsored mortgage giants Fannie Mae and Freddie Mac, he stressed.
"A large shadow banking system had developed without meaningful regulation, using trillions of dollars in short-term debt to fund inherently risky financial activity. The derivatives markets grew to more than 600 trillion dollars, with little transparency or oversight," he added.
The failure to modernize the financial oversight system sooner was the most important reason why this crisis was more severe than any since the Great Depression, said Geithner, who was head of the Federal Reserve Bank of New York.
The Obama administration managed to pass the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act, said Obama's top economic aide, adding that "the greater error would be for Congress or the regulators, under tremendous pressure from lobbyists, to once again exempt large swathes of the financial industry from rules against abuse".
"We cannot afford to forget the lessons of the crisis and the damage it caused to millions of Americans. Amnesia is what causes financial crises. These reforms are worth fighting to preserve," he added.