Moment in Time

I was fortunate enough to attend the President's speech on financial regulation reform in New York City last Thursday.  The presentation was not quite the scolding or plea described by the media; while targeting lobbyists and misleading press, the President spread blame across various sectors (public and private) for the Crisis while inviting Wall Street to participate in the cure.  More importantly, the 25-minute outline was often interrupted by applause, clearly indicating that the hour of tangible remedy has finally arrived.

The President's reform outline disclosed a number of concrete proposals, including:

• The creation of a consumer protection agency

• Regulation of credit derivatives 

• The implementation of limits on the size and proprietary trading activities of banks (the "Volcker Rule")

• The inclusion of 'say on pay' provisions for shareholders

• The creation of a fund to facilitate the winding down of insolvent entities

Other areas of focus are said to include:

• SEC funding

• Hedge fund regulation

• The harmonization of standards of care for brokers and investment advisers

• The creation of an inter-agency council to detect systemic risk

• The consolidation of banking regulation

• The regulation of credit rating agencies

Reasonable minds can certainly differ over the breadth of (and thresholds for) Wall Street reform.  But it would seem that the days of casual reliance on Comedy Central or Fox news for news summaries must be abandoned.  Concurrently, there is a duty on all of us in academia to propel a meaningful discourse on changes that may shape banking, homeownership, investment and speculation for years to come. 

For those who would rush to adopt all proposals, there's the uncomfortable fact that net capital rules, a ban on abusive short selling, and an array of regulators all predated the Crisis.

For every pundit who would predict weeds growing on Wall Street, there's the ugly truth that industry bonuses and intensified lobbying efforts are currently near record proportions (thus belying threats of layoffs and office moves).

Perhaps the cause is best elevated - and attendant fears best defused - by a TIME magazine quote the President included at the climax of his NYC speech:

"Through the great banking houses of Manhattan last week ran wild-eyed alarm.  Big bankers stared at one another in anger and astonishment.  A bill just passed ...that would reduce all U.S. banking to its lowest level." 

The TIME quote was from June 1933, and it referenced the FDIC.

  ---JSC, 4/26/10