The first round of the strategic and economic dialogues, which will be held on July 27-78 in Washington, is a reincarnation in a broader format of the Strategic Economic Dialogue set up by former US Treasury Secretary Henry Paulson, who used the forum to engage Beijing on an array of issues critical to longer-term bilateral relations. The new mechanism was jointly launched by Chinese President Hu Jintao and his US counterpart Barack Obama during their meeting in London in April. 

On the US side, the dialogues will be headed by Secretary of State Hillary Clinton and Secretary of the Treasury Timothy Geithner.   According to Chinese Foreign Ministry, Dai and Clinton will co- chair the “Strategic Track” of the dialogue, while Wang and Geithner will co-chair the “Economic Track.”Obama will address the opening session of the dialogue, and meet with the Chinese delegation after the dialogue. During the meetings, the two sides will have extensive discussions on issues of strategic, overall and long-term significance in order to “deepen understanding, enhance mutual trust and promote cooperation,” said a Chinese Foreign Ministry spokesman at a press conference earlier this month.   

According to a Chinese finance official, China will explicitly raise at the “Economic Track” dialogue the hope that the United States “should make responsible economic policies, including financial and monetary policies, to maintain stability of the dollar and safeguard safety of China’s assets.”On the agenda of the “Strategic Track” dialogues, Chinese Foreign Ministry has said that the two sides would discuss the resumption of the six-party talks on the Korean Peninsula nuclear issue for a peaceful resolution.

The Federal Reserve is to have certain of its functions taken over by a new consumer protection agency, while The Fed is, by turn, to have a larger role in overseeing large institutions that could pose systemic risks if they became troubled.

The plan is being challenged by the financial services industry and its allies in Congress. There are lawmakers baffled by this dispute with the Obama adminstration, and Mr. Geitner sees this dissension as regulators protecting their powers.

For more please see today’s New York Times for an up to date.

There is a great deal of criticism of the proposed regulations by not only congressional members, but throughout the economic community. Among concerns voiced are that the current destitution of the American financial services industry will become permanent, that the moves will decrease America’s ability to compete globally, and, basically, too much weight is attached to populist objectives.

The Senators were particularly concerned that the Federal Reserve would gain too much power. For an in depth article please go to David Stout’s article in Thursday’s
New York Times.

All told, the government is currently facing $8 billion in losses on the 10 biggest investments it made – and that’s after accounting for the $424.1 million paper gain on Morgan Stanley (MS Quote) shares and the $271.6 million paper profit on Goldman Sachs (GS Quote) shares. 

For those keeping score, the Treasury owns almost $200 billion in preferred stock from 532 firms, but 8 firms account for $134 billion. In all, the bailout is now more than $3 trillion, which is just about as much as the entire federal budget for last year. Morgan Stanley and Goldman Sachs are the only 2 out of the 10 biggest government investments that are in the money. Aside from those two bright spots, the only other good news for taxpayers is that the government collected $2.5 billion in dividends from its banking investments through March 31. 

So my recommendation to Treasury Secretary Tim Geithner is to take the money and run if any banks are ready to buy back the preferred shares and repay the bailout money they took. If taxpayers have to wait for the shares of these banks to top the strike price, we may be stuck with these investments for a very long time.