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The Need for Speed on Reform

I think it's safe to say that the reaction to the White House's financial regulatory reform proposal was cautiously positive. It's not the root-and-branch restructuring that some wanted. But it covers the basics (leverage, systemic risk, derivatives) and offers a few welcome additions (the Consumer Financial Protection Agency).

But is anyone actually sanguine about it being made law?

Word is that Congress won't really begin considering these reforms until the end of summer or the beginning of fall. That means they're not likely to come to the floor until the end of the year or quite near it. That means banks and other affected companies will have months to organize against the provisions they consider most onerous. That means the economy will have time to grow a bit, and the terror following Lehman's collapse will have receded from our memories, and the financial sector and the politicians who protect it will be able to argue against shackling a growing economy with new regulations without being laughed out of the Congress.

I understand the impulse to do this right. To wait until the crisis had calmed and our minds were a bit clearer. And it's not as if the administration's economic team has had a lot of spare time in the past few months. But having watched the banks beat back "cramdown" legislation, and having watched the troubled companies slip out of TARP, and seeing that Republicans are already assailing stimulus, it's hard to be confident that the political system has the will to pass something as intricate and vulnerable to lobbying as regulatory reform. There are certain things that you want Congress to have time to consider and craft. And though it's sad to say, there are certain things you want rushed through the body fast enough that partisanship, lobbyists and electoral incentives can't keep up. I worry that financial regulation is one of those things.

By Ezra Klein  |  June 18, 2009; 7:03 AM ET
Categories:  Financial Regulation , Solutions  
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You're much more of a student of Congress than I am. So you tell me: can Congress realistically handle health reform, a Supreme Court nomination, and reform of the financial industry (plus the sundry other things they have going) all in one summer? Is there precedent for that much activity? If not, then you can't have it all.

What would you do first? I think you'd say health reform. Check. Then get the Supreme Court nomination done. Check. Then we're into the fall. Could it be any other way?

Posted by: TheIncidentalEconomist | June 18, 2009 8:46 AM | Report abuse

TheIncidentalEconomist -- But really, is health care reform that time sensitive, after all? I grant you we need to take care of the SCOTUS nomination, but really, health care has been a looming problem/struggle/opportunity for years, if not decades. Pushing it off until the fall will have little effect on its ultimate form, and may even allow further careful consideration and debate which could lead to even more intelligent and effective legislation.

However, as Ezra points out, financial reform is clearly a momentum play, which needs to be addressed now. In large part, this is because Congress itself will become the bottleneck and nexus for dilution and evisceration of the bill. By the time Fall arrives, the public will not care, the lobbyists will have lined up their Congressmen, and nothing will change. I say rush something strong through, and fine tune the details later. That is the only way we have a chance to get effective reform.

Posted by: TheEpicureanDealmaker | June 18, 2009 9:10 AM | Report abuse

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