Where financial regulatory reform is heading

December 15, 2009

The future of U.S. financial reform seems destined to track closely the path of that other major effort winding its way through Congress, healthcare. As a result, what came out of the House of Representatives with a narrow majority on Friday may be far more ambitious than what the Senate could possibly pass.

So the harshest critics of Wall Street – or the “fat cat bankers”, to use President Barack Obama’s label in a Sunday television interview – will be disappointed by the final result that will probably become law sometime in 2010.

As it stands, the House bill is hardly radical. It doesn’t embrace, for example, the preemptive dismantling of large, interconnected firms. It doesn’t reduce the Federal Reserve’s regulatory reach. It doesn’t restore the law separating commercial and investment banking. It doesn’t even give bankruptcy judges the power to alter mortgages.

But even bits that reformers favor face diminution or elimination. Senate Banking Committee Chairman Christopher Dodd’s more radical proposal to strip the Fed of regulatory oversight and create a single super-regulator has been a total non-starter. Dodd quickly reversed field and instructed committee members to pair off into bipartisan working groups to focus on key issues.

A Consumer Financial Protection Agency for gadfly Elizabeth Warren to lead looks possible, but it will be severely weakened from the House version. A proposed $150 billion bailout fund financed by banks could easily disappear. So, too, could language that would force secured creditors to accept a 10 percent haircut if a financial firm needs a government rescue. As for the Fed, one possible compromise would be for the central bank to monitor systemic risk but leave it to existing agencies to take action.

Prioritizing financial over healthcare reform might have led to a tougher final bill worthy of Obama’s harsh rhetoric. By multi-tasking, however, the White House’s need to get something done before midterm elections will undoubtedly lead to compromise or downright dilution. This is just the sort of unfortunate scheduling Wall Street would understandably celebrate.

3 comments

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Perhaps it would be more accurate to describe the whole exercise as ‘all talk , no action’, a suitable description of Mr. Obama. The fact, as Mr. P points out, that even a diluted bill may not even pass means that, despites the Obama administration’s tough talk, these guys can’t deliver. It also implies they may not deliver on any sort of global warming legislation either. This is not a bad development.

Posted by gotthardbahn | Report as abusive

This is a critical point, the regulation that is needed is pretty simple, establish a minimum transaction time for trades to clear so that flash orders can’t be used to steal money from legitimate traders and prohibit derivatives instruments from being used by nay bank that has direct or implied tax payer liabilities.

Macho talk of delivery is not interesting when what is being delivered is BS.

Posted by jstaf | Report as abusive

Republicans will never support a bill that undermines their agenda to broaden the wealth gap, no matter the cost to America or the world. It just won’t happen. Republican leadership since the emergence of the Reaganites will press for more corporate welfare, financial loop holes and fewer market restrictions every time they have the power to enact such policy or vote against policies counter to their agenda. Obama is on the correct path, but there are too many land mines between the goals of his rhetoric and getting there…and all are controlled by Republicans and paid-for Democrats.

In the end, “all talk and no action” is a B.S. cop out finger pointing phrase that has no meaning in this discussion. The reality is most of the details are too complicated for the “everyman” to understand until the system collapses and infringes on the everyman’s life. By that time it is already too late.

Hate speak regarding the “evils of government” are rampant in the Right wing media’s repetetive talking points and this ignorant drum beating prompted by a well crafted message machine, has proven effective the past three decades. It just keeps getting dumber and dumber…

Obama has already lost steam and the mid-terms are likely to be a big step in the wrong direction (again).

How soon we forget the lessons of the past…

Posted by NobleKin | Report as abusive