Financial Reform Reconciliation: Will Obama Push For Financial Stability?

The official reconciliation process between Senate and House financial-regulation bills will begin next week, but the behind-the-scenes maneuvering and intense lobbying is already well under way. The main remaining question is whether the final legislation will ultimately make the financial system at all safer than it was in the run-up to the crisis of September 2008.

How do big banks repeatedly get themselves into so much trouble? Dangerous banking in today's world involves banks trading securities and, in that context, taking positions -- that is, betting their own capital. For example, almost all the profits made by big banks in 2009 came from securities trading. When market conditions are favorable and traders get lucky, the people running these banks (and hopefully their shareholders) receive tremendous profits. But when this same risk-taking behavior results in big losses, the major negative impact is felt in terms of a major recession, raising government debt and sharply lower employment.

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