Securities regulators are famous for fighting the last war and not paying enough attention to the newest financial products that Wall Street banks are pushing.
President Obama, in a speech on the financial crisis at Georgetown University in April, spoke eloquently about the need to move away from a Wall Street-fueled “bubble and bust economy.” But Obama’s proposal for overhauling the financial regulatory system falls well short of his stated goal of making “sure such a crisis never happens again.”
It is somewhat strange that a disgraced elected official has now repositioned himself as an expert commentator on financial regulation, but that is exactly what Eliot Spitzer, the former New York governor, has done. His most compelling article for Slate to date is a critical look at the Obama administration’s proposed financial overhaul.
Enough of tinkering around the edges, it’s time for tough reform. The Obama Administration’s plan to overhaul the regulation of the financial system doesn’t go far enough when it comes to the securitization market — a source of credit that both it and Wall Street see as vital to the future of consumer and commercial lending.
It’s still not clear if the Obama administration has a plan for dealing with the derivatives monster, which is one of the biggest problems regulators must confront in dealing with the potential collpase of a “too big to fail” financial institution.
The Obama Administration’s expected to require rating agencies to differentiate the ratings it applies to corporate bonds and more complicated securities to give investors a heads up that some debt is not the same as others. Wall Street, unsurprisingly is opposed to the idea, since it could sap demand out of the already lackluster securitization business. But, this all seems a bit silly. If investors need a different rating to let them know what they are investing in, they’ve hardly learned much from the debacle of the last two years.