Why I'm Pessimistic About Financial Regulation
I think it's a bit early to label the administration's financial regulatory reform proposals a "damp squib." This wouldn't be the first time that the run-up to a major policy announcement announcement out of the Obama White House depressed expectations but observers found themselves pleasantly surprised when the details were unveiled.
But forget the details. I'm increasingly pessimistic on the success of the whole endeavor. Bloomberg is reporting that financial regulation isn't expected to hit Congress till sometime next year. That's a solid eight to 12 months in which the broader public can lose interest in financial regulation and the financial industry can ramp up its lobbying effort in the Congress. It also puts us a lot closer to an election, which will make that lobbying effort all the more effective. And, assuming our recovery continues apace, it's also past the period in which the government had massive leverage on the financial sector. A few months back, the banks needed federal intervention to survive. Right now, the government is helping them rebuild. In a year, the financial sector might have decided it doesn't really need the government at all.
Put it this way: Six months ago, it was easy to imagine securing an overwhelming change to the financial regulatory structure. Seemed almost a given, in fact. Today, I'd consider it unlikely. Banks have beaten back cramdown legislation and secured the ability to pay back TARP funds and managed to argue the stress test regulators into reducing the capital they needed to raise. They don't seem to be losing many battles. And 12 months from now? It's almost impossible to imagine Congress mustering the energy for a massive fight over financial regulation. Momentum matters for these things.
Also: Derek Thompson has similar concerns.
Posted by: Dellis2 | June 16, 2009 2:35 PM | Report abuse
Posted by: JonathanTE | June 16, 2009 3:36 PM | Report abuse
Posted by: InvestmentLiteracycom | June 16, 2009 4:04 PM | Report abuse
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