Wall Street Reform
Not one to tackle a manageable amount of issues at one time, the President today mad some remarks on regulatory reform. Now, I am going to be perfectly honest that a lot of this is above my pay grade. In general I think that we need to regulate banks for what they do and not what they pretend to be, and that Kevin Drum's hobby-horse of regulating leveraging is quite right. Canada is doing much better in this economic environment right now because their banks weren't as over-leveraged. In addition, the country might want to find a way to encourage banking decisions like the ones made by the Lebanese central banker who barred his country from investing in mortgage-backed securities.
Nonetheless, here are the President's 7 principles for reform:
• Enforce strict oversight of financial institutions that pose systemic risks
• Strengthen markets so they can withstand both system-wide stress and the failure of one or more large institutions
• Encourage our financial system to be open and transparent, and to speak in plain language investors can understand
• Supervise financial products based on "actual data on how actual people make financial decisions"
• Hold market players accountable, starting at the top
• Overhaul our regulations so they are comprehensive and free of gaps
• Recognize that the challenges we face are global
I read #2 as "we can no longer have any institution that is too big to fail," which is quite right. The rest seems like a lot of poll-tested and voter-approved speak. The details are important here. Actually, this paragraph is a better expression of core principles:
Let me be clear: The choice we face is not between some oppressive government-run economy or a chaotic and unforgiving capitalism. Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong. Not to stifle, but to advance competition, growth and prosperity. And not just to manage crises, but to prevent crises from happening in the first place, by restoring accountability, transparency and trust in our financial markets. These must be the goals of a 21st century regulatory framework that we seek to create.
With this being a global problem, it's good to see the EU stepping up more forcefully on the specifics, with sanctions for tax havens and caps on bonuses. Ultimately I think Obama could be brought around to that view, although the fear is that the New Democratic caucus will undermine whatever final legislation comes out of Congress as a payoff to their financial services industry paymasters.