It's hard to believe in the integrity of the financial reform package now almost certain to pass into law. That's not to say there aren't some positives in the legislation. But without an honest, straightforward approach the reform isn't likely to do much good. Here are five gaping holes which spell trouble for the future:
1. The root cause of the financial crisis hasn't been addressed.
In fact, it hasn't even been acknowledged! While there were plenty of contributing factors to the financial crisis, the central cause of all the panic was the incredible risk financial players were taking with other people's money. Reasonable limits on risk remain an absolute necessity. Until we take this on, the financial system will remain vulnerable.
2. Solutions are put off until later.
The main effect of the financial reform bill is to give unspecified powers to untested regulators who may -- or may not -- create effective rules. Rather than taking on and debating the rules, Congress has kicked the can down the road to a new group of Washington mandarins. It may all turn out well but we won't know for some time. In the meantime, the approach isn't exactly a profile in courage.
3. The temptation to further complexity appears irresistible.
Finance is already an overly complex area of the economy. The proposed legislation does nothing to cut through the fog and clarify the workings of the system. In fact, it seems designed to create an even more complicated matrix of products and rules. That's not what we need. We lacked clear information about the outrageous risk taking that led up to the financial crisis. Instead we were bombarded with gobbledygook dreamed up by risk takers and echoed by their regulators. If the past is any guide, the industry should be pretty sanguine about continuing to enjoy lax regulation, and more confident than ever that the taxpayer will pay if things go wrong.
4. Politicians are obfuscating the issue.
Congress and the Obama administration are in universal agreement that financial reform is vital to our economy. But they haven't exactly tripped over themselves rushing to put reform in place. The time to negotiate reform with the entrenched interests of the financial community was when banks and markets were in desperate need of help from the public. That time is long past, and with its passing the opportunity for strong and effective financial reforms has all but disappeared. So when politicians crow about how great this legislation is, or will be when its effects are ultimately able to be seen, keep in mind that the package appears to be designed to have minimal effects.
5. Financial leaders are morally bankrupt.
After so few take so much from so many, mightn't it be time for a little humility? The enormous risk in the system was no accident. It was knowingly and intentionally created for the short term gain of a relatively small group of financial leaders. But instead of acknowledging the absurdity of continuing these practices, bankers have been spending their time and energy blocking reform.
Is it really too much to ask for all involved -- bankers, politicians and the public -- to work together for real reform with the main purpose in mind of making the financial system better for everyone?