More power for the Treasury Department

The Obama administration, seemingly in perpetual motion, is asking Congress for a massive expansion of the government’s powers to intervene in the financial system.

It would empower the treasury secretary to seize control of depository financial entities — investment banks, insurers, private equity firms, hedge funds — if they were "systemically important." The phrase awaits a precise definition, but basically it means that if one of those firms failed, a lot of others would, too.

The government could then restructure, sell off or close the stricken firm.

It would indeed be a broad new assertion of federal power in the marketplace. And President Obama, sensing that in the current climate he has the public on his side on this issue, has asked Congress to put this legislation, which still seems to be lacking key details, on the fast track.

Through the FDIC, the government has long had the power to seize and liquidate failing banks. Obama said at his press conference Tuesday night that if the government had had this power the AIG situation — AIG is an insurer — wouldn’t have gotten as bad as it did.

Federal Reserve Chairman Ben Bernanke, who does not seem given to wild overstatement, explained to Congress why the government felt compelled to pump nearly $180 billion into AIG: "Conceivably, its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs."

Congress should move quickly, but it’s more important that it move carefully.

As presented to Congress, this plan puts almost unchecked power in the hands of the treasury secretary, a political appointee, and his boss, the president. The FDIC model would be more insulated from political considerations. The five members of its board of governors are appointed by the president and confirmed by the Senate, but serve five-year terms.

This new authority may work, but it would arrive on the scene after the "systemically important" institution is already failing. We would like to see this power accompanied by a regulatory structure that would lessen the chance of failure in the first place. The Obama administration says such a plan is on the way. Congress should wait for the whole package.