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The difficulty of selling financial reform

Health-care reform felt complicated to many, but at least people were familiar with the basic concepts. Most of us have some experience with insurance, and doctors, and hospitals, and medical bills. Not so for financial reform, where there's going to be a terrible devil-in-the-details problem. Take, for instance, Paul Krugman's explanation of what reformers should be looking to achieve:

Transparency is part of the answer. Before the crisis, hardly anyone realized just how much risk the banks were taking on. More disclosure, especially with regard to complex financial derivatives, would clearly help.

Beyond that, an important aspect of reform should be new rules limiting bank leverage. I’ll be delving into proposed legislation in future columns, but here’s what I can say about the financial reform bill the House passed — with zero Republican votes — last month: Its limits on leverage look O.K. Not great, but O.K. It would, however, be all too easy for those rules to get weakened to the point where they wouldn’t do the job. A few tweaks in the fine print and banks would be free to play the same game all over again.

And reform really should take on the financial industry’s compensation practices. If Congress can’t legislate away the financial rewards for excessive risk-taking, it can at least try to tax them.

There will be things under the heading of "transparency" in the bill, and there will be sections on leverage and compensation and much else. The question is whether those sections are strong enough. But it's not like the public option, where the thing exists or it doesn't exist. It's not like covering the uninsured, which can be expressed as a simple percentile, and where there are no implications to covering 95 percent, aside from 5 percent aren't covered.

The difference for financial reform is all details, which is going to make it far harder to communicate to the populace. The few efforts I've seen have attempted to make a "public option" out of the consumer protection agency, but good as it would be to have a consumer protection agency, it's pretty peripheral to the effort to ensure that the next financial crisis either won't happen or won't matter.

By Ezra Klein  |  January 8, 2010; 5:34 PM ET
Categories:  Financial Regulation  
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Comments

I doubt Ezra, people are that dumb. They know couple of things about Financial Reforms:
- politically it is easy, meaning every one wants that;
- there is minimal amount of tax payers money is involved (essentially there is nothing which Government has to buy nor there are any entitlements to be provided).

So then people clearly know that 'the extent Congress would whack Bankers' is clear function of how much Bankers own Congress.

No matter what, that will be the single most criteria people would use to evaluate these reforms. Needless to say both Congress and WH have failed miserably on that front and there are no signs that anything worth while to come there.

Sen. Schumer may be burning midnight candles (at least there is no such news but...); but until he comes out with 'right' compensation laws for Bankers; people are not going to believe Dems. Till then it will be always 'Dems in Congress and WH sleep with bankers....'

It seems to me Admin and Dems in Congress are digging their graves by not doing needful things as well as not being creative in rising up to the challenges of steering this hobbled Economy to sound footings.

Posted by: umesh409 | January 8, 2010 5:57 PM | Report abuse

Ooooo. I must disagree with you about the importance and usefulness of the CFPA.

Recently saw Elizabeth Warren (whom I trust) on RMS stating that had we already had a CFPA in place, consumers would have been squealing about what was happening with mortgages early in that melt-down process (an early, public red-flag from the populace). I'm pretty sure she said, unequivocally, that a CFPA would have prevented the mortgage melt-down. I'll check my facts on that, though.

I think a CFPA is critical to overall financial reforms. If nothing else, the level of opposition to it, from banksters and other financial oligarchs, is a strong indicator to me just how badly we need it.

Posted by: onewing1 | January 8, 2010 6:17 PM | Report abuse

For anyone who might be interested in Elizabeth Warren's take on the necessity of a CFPA, here's a link to a short video of her talking on the subject with Rachel Maddow.

http://airamerica.com/therachelmaddowshow/blog/01-07-2010/watch-why-gop-still-wont-regulate-banks/

Posted by: onewing1 | January 8, 2010 8:01 PM | Report abuse

Jesus, there's nothing technically complicated about financial reform. The complication is that Congress' rightful owners, the banks, are not interested in reform. Who would have thought that.

Posted by: carbonneutral | January 9, 2010 12:18 AM | Report abuse

umesh409: Not really. There's a difference between a bill which hurts bankers and a bill which effectively regulates the financial sector (although the two goals overlap, since punishment deters future misbehavior). This isn't just about punishing the wicked, it's about making sure that this doesn't happen again. If we send the bankers to the firing squad but another catastrophic financial collapse happens in five years, that will have been a failure.

Posted by: usergoogol | January 9, 2010 1:04 PM | Report abuse

It seems to me that the opaqueness of financial reform might actually be a pretty big asset in passing it.

Healthcare reform is quite literally a matter of life and death. So it's really easy to pull a couple words from subsections scattered all over the bill and build a narrative of DEATH PANELS and RATIONING and SOCIALISM dun dun dun! People think they "get" healthcare (even when they obviously don't), so it's really easy to manipulate the public on it.

The stakeholders are much more technical and "rational" (in the classical economic sense) with financial reform. They'll be more willing to cut deals and come to a compromise, and it'll be a hell of a lot harder for either Glenn Beck or Jane Hamsher to demagogue it.

Posted by: NS12345 | January 11, 2010 9:32 AM | Report abuse

Good. The more inscrutable the subject matter, the harder it is to demagogue.

Posted by: roquelaure_79 | January 11, 2010 11:07 AM | Report abuse

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