Nobody just announces anything anymore. Before anyone in Washington can get lunch, it has to be leaked, briefed, previewed in speeches, summarized in op-eds. And so it is with Treasury's much-mooted financial regulatory reform proposals.
After weeks of releasing bits and pieces of the plan -- derivatives, bank regulation, executive comp, now securitization -- Tim Geithner and Larry Summers offered a summary preview in the Washington Post of the whole megillah. For anyone who's been visiting this blog, there was little that was new, and what was there was couched in a prose so general and so soporific that you'd think, probably correctly, that they wanted you to nod off and only awaken after Congress passed something, anything.
David Wessel of the Wall Street Journal seems onboard with that. Wessel in his Capital column offered the pundit's equivalent of the Geithner, Summers snorefest: He runs through the major "problems" (he skips more than a few) and then offers the government's "solution." Now and again, Wessel suggests that some of these "solutions" are "tricky," but he seems desperately eager to pat them on the back for a job well done anyway.
"There is no doubt the Geithner-Summers squad worked thoughtfully through each of the many issues; this is no rush job. Now we'll discover if they've balanced substance and the politics just right to navigate a proposal through Congress (and around the lobbyists) that achieve all these sometimes-conflicting goals."
Wessel is like a little league coach congratulating his losing team for making it into the fifth inning. So the entire purpose here is to get something through Congress? What if it stinks? Do we really care if they were thoughtful and worked hard? And does he really expect us to believe that the Treasury proposal has not already been shaped and reshaped by intense lobbying and political considerations, as his own newspaper has been reporting for weeks? This is what he extracts after all those visits to the great men of finance?
Meanwhile, the WSJ outside Capital was pounding away again on Tuesday. Both the WSJ and the Financial Times have probing pieces about an area Wessel never touches on: Treasury guidelines on a key business at the center of the crisis, securitization. Both papers in their reporting reflect pessimism about the plan. The WSJ leans on the too-little, too-watered-down approach, while the FT has bankers warning gloomily that forcing banks to even take on some of that securitized risk will reduce profitability and keep them gearing up the securitization engines. This has been a routine bank complaint about many of the Treasury proposals -- and a reflection of the implicit blackmail that the largest banks embody.
The deeper questions here revolve around how badly we need securitization and what is, in that cliché of the moment, "the new normal." For some in Congress and in the banks, the new normal should essentially replicate the old normal, just safer and sounder. They would argue that the American people want that as well, an argument that has some validity despite the regular fantasies in the media that we prepare to live off the land. The administration seems to understand that there's a trade-off between that new normal and safety and soundness, and that gets baked into some of its proposals. Others of course, particularly on the left, see a necessarily drastic reduction in the new normal, and argue that the Obama folks are selling out for short-term gains. The trouble here is that a true understanding of what that normal level will actually settle at is impossible to forecast, particularly given proposals involving complex instruments that we've never really mastered in the first place.
Lastly, as if in response to my plaintive cry Monday, Paul Volcker reappears in the op-ed pages of the WSJ. So he hasn't been sent to an undisclosed bunker, although the speech excerpted by the Journal was given in Beijing last week at the meeting of the International Institute of Finance. Here's the truth: Volcker's short and pungent remarks possess more realism and cut closer to the bone than anything that's come out of the administration. Volcker does not offer bromides, mostly because he's only trying to get folks to think through the difficulties, not get a massive set of proposals through the sausage maker of Congress (and not distract those worthies from healthcare). Volcker brings up the notion of regulation modulated and differentiated by the nature of the institution: Depository institutions with federal insurance should be regulated more heavily, he argues, than hedge funds and private equity firms that engage in proprietary trading and speculation. He also touches on the mark-to-market and accounting issues, arguing again for a sophisticated and differentiated use of fair value for certain regulated institutions.
This train of thought, without saying the words, is a system akin to the New Deal's Glass-Steagall -- and a model that the administration seems to have abandoned some time ago. There are serious issues to debate with that approach, some of which Volcker touches on (systemic risk and too-big-to-fail) and some he doesn't (what to do with universal banks and how to ensure the more highly regulated utility banks remain competitive). He also doesn't offer a view as to what the new normal would be under his approach. But he's giving an after-dinner speech, for God's sake. Needless to say, it's a breath of fresh air. Somebody should bring him back from Beijing.
Robert Teitelman is the editor in chief of The Deal.