By Dan Froomkin
1:05 PM ET, 06/17/2009
Let's start with the basics: It's a good thing that President Obama is proposing new regulations for the financial industry.
After five months spent untangling a massive pile-up in the financial industry and patching up the wounded, it's entirely appropriate -- necessary, really -- that he establish some new rules of the road. There's a lot to be learned -- and fixed -- based on what we've experienced lately.
And Obama's avowed goals are admirable -- among them to make consumer-level decisions more transparent, to plug gaps in the regulatory structure that were exposed by this crisis, to update rules to reflect new financial products, and to provide closer government supervision of institutions that we now realize are simply too big too fail.
Indeed, Obama is appropriately perplexed by some of the squawking coming from the financial sector.
"You know, I think that Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected," Obama told Bloomberg's Al Hunt yesterday:
"When I hear some of the commentary that's been creeping up about, 'You know, it's time for government to get out of the economy' and 'What's the Obama administration doing?' I have to try to remind them — all we're doing is cleaning up after the mess that was made....
"[W]hat I do think everybody should understand is that we now need some sensible rules of the road so that people aren't taking exorbitant risks that pose system-wide risks to the financial system; that, when it comes to issues like executive compensation, shareholders should know what management is - is giving themselves so that, you know, their interests are properly aligned.
"We think that it makes sense for consumers to know what they're getting into when they sign up for a credit card or a subprime loan, that credit agencies aren't self-interested when they're rating securitized products.
"So there are just a bunch of commonsense reforms that I think we can make. And as soon as we get those in place, I am eager to make sure that we can refocus our attention on long-term challenges, like improving our school system or our health care system, that should be the subject of - of - of my administration's attention."
But despite the complaints emerging from the big-money crowd, the evidence suggests that Obama has undershot rather than overshot with his regulatory overhaul.
Consider that, as Stephen Labaton writes in the New York Times:
President Obama’s plan to reshape financial regulation, which he will unveil on Wednesday, is the product of weeks of meetings among government officials, financial experts, lawmakers, industry executives and lobbyists, many of whom were invited to help the White House draft the proposal.
As a result, he writes:
Although it would strikingly reorganize the regulatory architecture, the president’s plan results from many compromises with industry executives and lawmakers, and is not as bold as some had hoped.
Or, as Obama said in an interview on CNBC with John Harwood yesterday:
Did, you know, any considerations of sort of politics play into it? We want to get this thing passed, and, you know, we think that speed is important. We want to do it right. We want to do it carefully. But we don't want to tilt at windmills, we want to make sure that we're getting the best possible regulatory framework in place so that we're not repeating the mistakes of the past.
(And don't miss the video of Obama killing a fly with his bare hands during the Harwood interview.)
Obama also sat down for an interview with Gerald F. Seib, who writes in the Wall Street Journal that the president wanted to make it clear that he aspires to a "light touch" -- not heavy-handed meddling.
Mr. Obama went to great pains to explain that there is a philosophy behind the changes he is about to propose to the nation's financial plumbing. Indeed, he says, it is the same philosophy that applies to his broader view of the government's role in the economy.
What would have the biggest impact on the average American? Kevin G. Hall and Tony Pugh write for McClatchy Newspapers:
Among the sweeping changes in government regulation that President Barack Obama will propose Wednesday is the creation of an independent and powerful Consumer Financial Product Safety Commission to regulate financial products such as mortgages and credit cards.
With an eye toward protecting consumers and ordinary investors, the Federal Reserve and other bank regulators would lose their oversight over mortgages, credit cards and other financial products that are sold to consumers. It's a radical shift in approach and a tacit acknowledgment of federal failure.
"Lets face it, the (Federal Reserve Board) has had the power to engage in aggressive consumer regulation at least since 1994," Harvard law professor Elizabeth Warren, who chairs the Congressional Oversight Panel, which oversees how Wall Street bailout money is being spent, told McClatchy in an interview. "They clearly had the power to stop the mortgage crisis before it started. And what did they do with that power? Nothing."
Binyamin Appelbaum and David Cho write for The Washington Post:
Many of the specific proposals will require legislation, and today's announcement will drop the plan into an already heated debate on Capitol Hill about the eventual shape of reform. The financial crisis has forced broad consensus that changes are necessary, but there are wide disagreements about the details.
From Obama's remarks:
"Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and the failure of their government to provide adequate oversight. Our entire economy has been undermined by that failure.
"The question is, what do we do now? We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind. So today, my administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression."
With some early reactions, Felix Salmon blogs for Reuters:
If you thought this was going to make the current horribly-complicated system of financial regulation less complicated, think again.
But Justin Fox blogs for Time that the consumer-oriented commission is a good idea:
We already have lots of regulations that decide how people get to live financially. It's just that right now they're all administered and in some cases written by agencies also charged with making sure banks are profitable. Guess what—protecting consumers and keeping banks profitable don't always go together. There's a lot to be said for separating the two tasks.