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Obama: We're Moving Toward Broader Regulation

In remarks underway now, President Obama said he is pushing toward new and broader regulation of the financial sector that he hopes will prevent the "bubble/bust mentality" and prevent larger systemic risk.

What the president is talking about is a version of macroprudential regulation -- something The Ticker has written about here and that gives government agencies broad powers to try to predict and then deflate bubbles before they burst.

Obama said non-banks, such as hedge funds, need to be subject to the same regulations that banks are under the FDIC.

The president said he has told Rep. Barney Frank (D-Mass.), chairman of the House Financial Services committee, to get to work on legislation creating the new regulation.

Addressing the AIG bonuses, and other corporate excess, Obama said: Just as outrageous is culture these bonuses are a symptom of. It existed for far too long -- excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bank."

Obama may have actually said "bag," but he is speaking outdoors and it's hard to tell. Plus, it would be nice to think he was making a clever wordplay.

The president also took a whack at explaining the AIG mess. Here's the bulk of it, typed out as he spoke it, with a couple of words that we missed:

"AIG had insured a whole bunch of losses from a whole bunch of banks that had made bad bets on mortgages and losses. These were massive insurance policies. Unfortunately because of a lack of regulation, they were able to issue far more insurance policies than they could pay out on these various instruments...Had AIG been allowed to simply liquidate and go bankrupt, all those banks who were counterparties with AIG would have experienced such big losses that it would have threatened the entire financial system."

-- Frank Ahrens
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By Frank Ahrens  |  March 18, 2009; 12:38 PM ET
Categories:  The Ticker  | Tags: Obama, regulation  
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Next: 4 Fannie Execs Each to Get $400K in Govt.-Okayed Bonuses


Welcome to the brave new world of the snake charmer and his self-righteous snakes.
Obamunism is the relentless pursuit to make the United States just another run-of-the-mill second rate socialist failure.

Posted by: PsychosisRules | March 18, 2009 2:51 PM | Report abuse

Welcome to the brave new world of the snake charmer and his self-righteous snakes.
Obamunism is the relentless pursuit to make the United States just another run-of-the-mill second rate socialist failure.

Posted by: PsychosisRules

-So what's your solution genius? Let the market work it out? People like you should be sterilized.

Posted by: theobserver4 | March 18, 2009 3:13 PM | Report abuse

People need to start seeing the real Obama before it is too need to wake up, it is our freedom and rights he is messing with...this mess with aig is because the stimulus plan Obama signed said in it that companies bonuses would not apply to the aig only did what they were allowed to do...maybe next time Obama will read what he signs.

Posted by: b_tamargo | March 18, 2009 3:27 PM | Report abuse

From 1981 till 2009 we have had a false and faulty ideology pushed on us by the right wing. That dogma was that if we just left business to its own devices without the hand of government then everything would be fine for the American people at large and it would be morning in America.

Christopher Cox as Congressman was one of the leading lights of the Contract for America Republicans that became the majority in Congress from 1995 till 2007. He was appointed head of the S.E.C. in 2005 by George W. Bush and proceeded to run this regulatory agency by turning a blind eye to the goings on of the industry his agency is charged to oversee. Repeated warnings over Madoff's operation were completed ignored by Mr. Cox.

Reading this news report confirms the wisdom of my voting for Obama. Cons begone!

Posted by: dldbug | March 18, 2009 3:38 PM | Report abuse

Reading these comments makes me feel that some of you either do not understand the gravity of the current financial/economic situation or are playing politics. I bet on the former

Posted by: colonfr2002 | March 18, 2009 3:51 PM | Report abuse

I am mad at OBAMA - let his income be taxed at 80% - ALL his income including that from books, speeches, and special interest groups.

I also want all the solicited funds for his "snowcap for change" and "christmas ornament for change" and "2009 claendar for change" to be taxed at 80% as well.

Maybe then he would act like a wise and prudent steward of all the tax money he has taken from us!

Posted by: mgd1 | March 18, 2009 4:55 PM | Report abuse

One of the most important things to do is prevent people from purchasing derivatives on securities that they don't own or are not willing to receive as settlement. Charles Munger pointed out in an op-ed a few weeks ago that being able to buy credit default swaps on bonds the purchaser didn't own created entities with a burning desire to see companies fail. It also magnified the risks to sellers like AIG.

My suggested solution: Prohibit settlement of any derivatives (options, futures, swaps) in cash. Settlement would have to be in the commodity or security on which the derivative is based. Speculators in physical commodities would have to arrange to receive and store them somewhere. I'm sure some people would be willing to set up businesses that store those physical commodities that don't currently have such arrangements (I think gold may be an example of one that does).

There are all kinds of crazy games that can be played with derivatives that settle in cash. One factor in the financial crash is that there are many times as many credit default swaps on mortgage bonds than there are actual mortgage bonds. Some of them are swaps purchased by sellers who want to zero out their positions. But the others are just bets that the bonds will default.

Another game is that there are ways to use derivatives to effectively sell short without an uptick. This enables market gamers to pound down the prices of stocks. In the 1920's they had what were called "bear raids". Some of the reason the SEC was established was to eliminate the worst of the gaming.

We need to go back and get rid of the nonsense that has rebuilt in the financial markets. I hope that will be part of the reregulation that Obama is proposing.

Posted by: StanKlein | March 18, 2009 5:24 PM | Report abuse

Perhaps the Obama Nation can begin its quest for more regulation by returning the $101K in campaign contributions that ABC news reports it received from AIG.

No wonder they waited until AFTER the bonuses were given to express outrage.

More Kool-aid anyone?

Posted by: randy_boyd | March 18, 2009 6:23 PM | Report abuse

I urge Congress to begin studying the need for imposing government regulations on financial institutions. Twice in our history, we've suffered grave damage to our economy because government failed in its duty to protect the people from unscrupulous business practices. Everything was fine until the early 1980s, when Congress began its latest round of listening to the capitalist, who favor laissez faire economics. With Reagan as President and a Democratic Congress, the federal government began to systematically remove regulations that had served us well since the Great Depression. In the early 90s we were beginning to see the harmful effects of deregulation, but President Clinton, at great cost to the Democratic Party, was able to prolong the inevitable by raising taxes and producing surpluses that could be used to begin paying the federal debt. These actions gave the people a false sense of security that the government did not need to regulate business and deregulation accelerated under George W. Bush.

Well, anyone who has studied history knows that greed and selfishness will quickly take root in a laissez faire economic system as the government turns a blind eye toward abuses. And, sure enough, by 2007 we were beginning to see the start of our own great depression. The deregulation of business had once again produced its bitter fruit. Today, we find ourselves in a situation that may very well be worse than 1929. If Congress would simply pick up the "Federalist Papers" and read them, the people could be spared a lot of grief. In Federalist Paper No. 11, Alexander Hamilton set forth in great detail the reasons why it was imperative that the federal government regulate business to prevent it from degenerating into a dog-eat-dog situation counterproductive to everyone. Additionally, in Federalist Paper No. 42, James Madison further expounded on the grave dangers of unregulated business.

My question now is will Congress perform its duty to formulate and impose on business a comprehensive set of rational regulations to prevent another economic catastrophe in the future? Or, will Congress do nothing to regulate business in which case every effort to repair our damaged economy will fail? I wish that I could say the Members of Congress are rational men and women, who will surely do the right thing. However, given the past, I'd say we have a 50-50 chance of saving our economy and making it strong.

Posted by: Caliguy55 | March 18, 2009 7:06 PM | Report abuse

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