Yesterday, President Obama introduced an 85-page proposal seeking to reform financial regulations.
In his speech, he said, “A culture of irresponsibility took root from Wall Street to Washington to Main Street. And a regulatory regime basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope, and sophistication of a 21st century global economy.”
That, no one disputes, but Obama’s plan will still be a hard sell to Congress and banks.
U.S. Treasury Department Secretary Tim Geithner is testifying before the Senate panel and the House Financial Services Committee.
The Wall Street Journal reports, “In an interview Wednesday with ABC News, Mr. Geithner outlined the three core elements of the package: consumer protections, safeguards against risk-taking by financial institutions, and new federal authority ‘to better manage ... the potential failure of large institutions.’”
Democrats roundly support the proposal, while some lawmakers are concerned about the potential powers granted to the Federal Reserve.
Senator Chris Dodd and Representative Barney Frank, both chairmen of their respective financial committees, are skeptical that the Fed is up to the task of regulating, and say the matter is an open issue.
“Obama would give the Federal Reserve the power to regulate all firms that pose a threat to financial stability. Senate Banking Committee Chairman Christopher Dodd said yesterday in an interview that the matter is ‘still an open question.’ Frank said he also had concerns about the Fed’s ability to do the job,” reports Bloomberg.
Not surprisingly, banks are also wary of the proposal.
Many banks and lobby groups say Obama’s plan may hinder economic growth, and say they will fight for changes to the proposal.
That said, most think the plan will be passed essentially in its original form.
CNNMoney’s editor at large, Adam Lashinsky, writes, “Now Congress will begin its ugly process of turning the proposals into law. There are some good ideas here. There’s also a whole lot that may make Wall Street howl in protest.”
But Justice Litle, editorial director for Taipan Publishing Group, thinks these regulations won’t solve our current problem.
He writes, “There is still massive risk embedded in the heart of the rotten U.S. financial system. Mounting evidence points to the fact that the banks’ problems have not been solved, only papered over, entirely in keeping with the Fed and Treasury’s strategy of playing for time and outrunning the problem.”
In fact, Justice says the banking system is set to be hit with another wave of defaults and write-downs.
“When this second pain wave hits – making it clear that the first round of bailouts was an expensive sham – the public outrage that results could be enough to make the AIG fiasco look like a tempest in a teacup.”
The result, he says, would be a shattered banking system and “a total loss of confidence in Washington’s ability to manage the country’s problems.”
And while some argue that we’ve already reached that point, after throwing trillions of dollars more into the pot, Justice says this next wave will be accompanied by a fresh sense of fury.
“Watch out,” he warns.
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