Death Panels for Your Car Loan, and Other Distortions Sinking the President's Financial Reform Plan

11/14/2009 05:12 am ET | Updated May 25, 2011

President Obama on Monday travels to Wall Street to try to jump start the administration's thus far feeble effort to enact comprehensive reform of the financial system.

Back on June 17th, Barney Frank, Chairman of the House Financial Services Committee, predicted that the President's reform plan was "overwhelmingly likely to be passed substantially" in its original form.

But 12 weeks later the chances of that happening have grown increasingly slim.

The Obama financial reform plan has fallen victim to several problems:

  • Crisis, What Crisis? Congress operates at two speeds: Now; and Not Now. Much like an 11-year-old's approach to homework, any legislation that can be put off, will be. The current stabilization of the financial system, and nascent housing recovery, have reduced the urgency of action. So absent some new and threatening mutation of the financial crisis (anyone feel a case of commercial real estate market implosion coming on?), most of Congress would like to punt this thing until next year.
  • Agenda Overload The focus on health care as the administration's major domestic initiative pushed the financial reform agenda to the sidelines. Oh, and Afghanistan, the energy bill, the federal budget, and other assorted items are waiting for Congress as they return for the fall.
  • Death Panels For Your Car Loan Opponents of the President's financial reform proposal have deployed many of the same arguments that have stymied health care reform. Assertions that faceless feds will be an uninvited guest at the kitchen table as families make financial decisions characterize the message. Representative Jeb Hensarling nicely summarized the scary talk: "Unelected bureaucrats will now decide what mortgages we can have. They can decide what bank accounts we can open. They may even decide whether or not we can be trusted with a credit card. This could take us back to the 1950s." (And you thought House Republicans wanted to go back to the 1950s!)

Meanwhile, the administration's campaign for financial reform has been anemic. The Treasury Department, charged with leading the effort, has plenty of policy wonks and ex-Wall Street financial geniuses, but no commandos capable of orchestrating support and beating back opposition. By contrast, the US Chamber of Commerce, just one of many trade groups working to defeat a financial overhaul, is spending $2 million in advertising to get their message out.

The administration didn't put horsepower behind the financial reform effort, miscalculating political reaction to the proposals. They mistakenly assumed, for example, that the creation of a Consumer Finance Protection Agency (CFPA) would be politically popular "rocket fuel" that would carry some of the denser and more contentious proposals (on systemic regulation, banking regulator overhaul, credit agency reform) through the legislative process. Instead, CFPA has run into a lukewarm response even from many Democrats. The only piece of the package that has any momentum is the reform of executive compensation, driven in large part by a continuous parade of jaw-dropping headlines on bonus pay.

In his Wall Street speech, the President will rightly point out that federal actions to stabilize the banking and financial system have avoided the economic armageddon that many predicted just one year ago. At the same time, he will try to renew the sense of urgency to pass reforms that will prevent another financial meltdown. He will argue that federal regulators lack the tools to effectively monitor and oversee the financial system. And, no doubt, the President's speech will foster a bump in the futures market betting on new federal regulation. But one speech alone won't be enough to move his financial agenda through Congress. The administration will need to "play away from the ball" -- following up on the President's speech with a focused campaign to build support for financial reform. Without a sustained effort, we will likely end 2009 with the same system of financial regulation that suffered near catastrophic failure -- and that is in nobody's best interest, consumers and Wall Street financial barons alike.