* New law promotes "crony capitalism" Griffin says
* Well-connected firms benefit the most, he says
* Markets may suffer under new law, Allstate's Wilson says
By Philipp Gollner
BEVERLY HILLS, Calif. May 2 Banks with close
ties to Washington would be favored under new liquidation rules
meant to avoid "the too big to fail" taxpayer rescues seen in
the recent financial crisis, Kenneth Griffin, head of giant
hedge fund Citadel LLC, warned on Monday.
"Companies connected to Washington that curry political
favor will be favored" by the new rules "at the expense of
those that do not have their business model built around
appeasing politicians," Griffin told the 2011 Milken Institute
Global Conference in Beverly Hills, California.
"It will deeply entrench crony capitalism in the middle of
our financial system," he said of the liquidation authority
included in last year's Dodd-Frank financial law.
Lehman Brothers filed for bankruptcy in 2008, sending panic
through the financial system and leading the U.S. government to
provide massive aid packages to other financial firms.
In an effort to prevent future disorderly failures or
massive bailouts, Dodd-Frank empowers the U.S. Treasury to
direct the Federal Deposit Insurance Corp to begin liquidating
a failing financial firm.
Griffin said the law gives regulators too much authority
and discriminates against banks that do not have enough clout
"It opens the door to crony capitalism unlike what we've
ever seen before in this country," he told a panel discussion
at the conference.
Jim Millstein, the former chief restructuring officer of
the U.S. Treasury Department, agreed with Griffin that the
legislation was flawed but said there is a need for government
to provide liquidity to the financial system in times of
"My own estimation is that if we hit close to the edge
again, we will see a repeat of the drama played out in
September, October 2008," Millstein said.
Thomas Wilson, chief executive of insurer Allstate Corp
(ALL.N) and deputy chairman of the Federal Reserve Bank of
Chicago, said the law gives the FDIC too much power.
"When you ask the FDIC to come do an O.L.A. (orderly
liquidation authority) with rules that they make up, it will
work to the disadvantage of the markets," Wilson told
(Reporting by Philipp Gollner; Editing by Tim Dobbyn)