What to Watch For In the Administration's Financial Sector Reforms

Here's a partial scorecard for looking at the administration's regulation reforms. I've listed what the administration should, in my opinion, of course, do, along with notes on how likely I think it is.

Is Obama going to regulate Collateralized Debt Swaps like insurance, meaning that you can't insure something if you can't pay it back and you have to use government mandated tables, make sure there's insurable interest, not allow over-insurance and so on?

Will Obama do this? He may do some of it, but I doubt he'll do all of it.

Is he going to limit leverage properly, by which I mean not just not allowing leverage rations above 10:1, for anyone, but not allowing leverage on leverage - not allowing someone to use a leveraged asset to leverage off of.

Will Obama do this? Maybe, maybe not.

Is he going to properly regulate securitization? By which I mean not allowing securitization of already securitized assets, full reform of the ratings agencies so they have no incentive to over-rate securities, not allowing collateralized assets to have higher ratings than the underlying securities, and not allowing financial innovation which is not approved by regulators?

Will Obama do this? We'll see.

Move to highly progressive taxation. If he doesn't do this executives will always have an incentive to create bubbles because they will be able to make so much money in a few years that it doesn't matter what happens to their companies in the long term.

Will Obama do this? No.

Is he going to move to a financial transactions tax like the Tobin tax in which every transaction is taxed a little bit so that if the government gets stuck with the bill again, it's been collecting cash for the job of cleaning up banker's messes?

Will Obama do this? Hardly.

Is he going to break up the "too big to fail" banks and other financial firms so that in the future failed financial firms can just be put into receivership and can't hold the economy bankrupt?

Will Obama do this? Don't make me laugh.

Is he going to reinstitute the Glass-Steagall provisions to not allow brokers, investment banks, commercial banks and insurance companies to conglomerate?

Will Obama do this? Hardly.

Is he going to tell his Attorney General to engage in widespread fraud investigations as to whether mortgages were sold fraudulently, Collateralized Debt Obligations were created fraudulently, and Debt Swaps were sold fraudulently?

Will Obama do this? Probably a few prosecutions, but nothing wide ranging.

Is he going to try and pass anti-usury laws?

He'll try. But somehow they won't pass.

Is he going to spend as much money, or even half as much money, helping homeowners and people who lost their jobs as has been given to banks and financial firms?

Will Obama do this? No.

I'm hoping to be surprised on the upside here. Of course, any regulations are only as strong as the regulators will and resources to enforce them, so the other question will be "is this all for form?"

We'll see.

Comments

[larry278]

Mr Welsh used his wit to tell us that we won't get many changes in the financial area from Pres Obama, the spurious agent of change. If you expected an elevator to let us down gently (& maybe take us up & out of the deepening depression), be patient. Obama is working on it. Hey, he just gave us the shaft, again.

[go]

As always, thanks for your work and the insight into equities over yonder at FDL. Perhaps things will proceed differently after more (lots more) people realize how much the ground has shifted neath their feet. It ain't over til the fat lady has nothing to eat. This thang ain't hit the fan yet and until it does peeps will continue to hold on to the map and refuse to see the terrain. The band is just tuning up it's instruments and they are not going to be playing a pretty tune all too soon. Perhaps different songs will be sung when more people actually realize a different tune is being played. Always merry and bright.

[Sundialsvc4]

The thing that we must stress here is that it is the Congress of the United States, and none other, which has the sole authority to craft and to revise law.

The President is simply the Chief Executive. He is constrained to operate within the parameters of the law as it presently exists.

I, too, do not agree with the President's present clingings to a Wall Street power-structure (and to its former executives...) whose "wisdom" now stands revealed as "supreme Folly." I think that he has made a very serious error in this.

But... I look to the Congress, not the current President and not the Office of the President, as both the root cause of the problem and its only avenue for solution.

Banks... finance... even the Office of the Secretary of the Treasury of the United States... exist and do business only "by and through law." Our collective fury at the present situation must remain focused squarely upon the body of 600+ individuals who are charged with making the Law of the Land. The collective fury of the worldwide financial community must be similarly focused.

We find ourselves victimized by a worldwide system of ... organized crime ... because the Congress of the United States not only dismantled protective law, but quietly passed enabling law, and is now considering EVEN MORE "enabling law" that has been handed to them by the selfsame criminals.

We MUST NOT flinch from calling this thing "organized crime."

[joeneri]

It's within our power to change the economic system:

Stop buying so much junk on credit. Use cash.

Save. Delay gratification.

Learn how to make some of your own stuff: carpentry, sewing, anything that teaches practical skills of hand.

Grow a garden. Mow your own lawn instead of hiring gardeners.

Walk or bike instead of driving.

Read instead of watching television.

Learn an instrument. Learn to draw or paint.

In other words, free yourself from the habitual consumerism the elite depend upon to grow rich.

[Romeover]

All good advice, joeneri, but none of it will change the economic system. The best (highly unlikely) outcome from implementation of your proposals which are aimed at the individual consumer is that the current economic system will wither from lack of participants.

[Sundialsvc4]

Until securities fraud ... usury ... deceit ... are called by their proper name and purged from the world's financial system, the great crimes will continue.

These people want to be called "wise," not "outrageous Fools."

They want to be called "rich beyond measure," not to be told that their gold has turned to Dross.

They want the world to follow them into Perdition, as though we were following the Pied Piper.

They want us to believe that there is no other way.

To quote the Allied general from World War II: "N-U-T-S."

[darker]

As long as Congress, particularly republicans, are for protecting the Republican-created
Nanny State for the Rich and their CEO welfare queens, Obama knows that he'll get nowhere fast.

THAT'S where you should look to protest: corporate protectionism.

[Thermodynamics]

Obama should do the right things or tell us why not. We need to hear from him. We need specifics.
I helped in his campaign, as did many other readers here. We are invested.

This was the problem with Bill Clinton. He failed to do the right things (The Republicans did control Congres) and he failed to make a stink and motivate the grassroots to contact their people in Congress.

[Sundialsvc4]

Call your Congressman. Call your Senator. Use the power of the Press.

Evil law-making brought us here. Only responsible law-making (and international pressure) can get us out.

[pollyx]

Ian, I hope you're surpised! I want to be. "Don't make me laugh." In all seriousness we all really need to! Isn't anyone brave enough to do what needs to be done?

[Raven]

Ian, well it's good to hear that you'd be surprised if you were wrong.

Because I have a feeling you're going to be quite surprised.

Will Obama do all of these things now, while the Feds are scrambling to put out a fire?

Don't make me laugh, Ian, if you think that's possible.

Does he plan major regulatory reform - including breaking up the megabanks?

Be ready for some surprises, Ian.

Meanwhile, pay attention and learn patience as well.

Things aren't nearly as clear-cut as you seem to think they are. Time is of the essence in stabilizing. Real reform will take time.