Is it policy or is it theater?
by tarheel74, Fri Jan 22, 2010 at 02:19:50 PM EST
A front page entry talks about Obama's new proposal regarding the banking system. While Josh Orton points out a regrettable phrase, actually there are bigger problems. For one I seriously question the sincerity of this administration to take on "too big to fail" banks.
As Robert Reich noted in his column, the House has already passed its version of Financial reform without doing anything to the "too big to fail" banks thanks to Obama's chief financial advisers. Are they willing to go back and take another stab at it, especially when the Senate banking committee is in complete disarray?
But the malaise goes beyond just the House and the Senate. It lies within the White House. Seemingly the two chief advisers to the President are not on the same page as far as his neo-populist banking reform proposals go.
This is what the President said in his statement:
For while the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near collapse. These are rules that allowed firms to act contrary to the interests of customers; to conceal their exposure to debt through complex financial dealings; to benefit from taxpayer-insured deposits while making speculative investments; and to take on risks so vast that they posed threats to the entire system.
That's why we are seeking reforms to protect consumers; we intend to close loopholes that allowed big financial firms to trade risky financial products like credit defaults swaps and other derivatives without oversight; to identify system-wide risks that could cause a meltdown; to strengthen capital and liquidity requirements to make the system more stable; and to ensure that the failure of any large firm does not take the entire economy down with it. Never again will the American taxpayer be held hostage by a bank that is "too big to fail."
It's for these reasons that I'm proposing a simple and common-sense reform, which we're calling the "Volcker Rule" -- after this tall guy behind me. Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that's something they're free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.
In addition, as part of our efforts to protect against future crises, I'm also proposing that we prevent the further consolidation of our financial system. There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank. The same principle should apply to wider forms of funding employed by large financial institutions in today's economy. The American people will not be served by a financial system that comprises just a few massive firms. That's not good for consumers; it's not good for the economy. And through this policy, that is an outcome we will avoid.
This is his senior adviser and Treasury Secretary on PBS yesterday:
JUDY WOODRUFF: So in essence, are you saying, big banks need to be broken up?
TIM GEITHNER: No, this does not propose that. What this does is try to make sure we limit risk-taking - the kind of risks that could threaten the stability of the system in the future.
In other words "too big to fail" is here to stay. The behemoths are ok as they are, but we will stop them from becoming bigger (if that's possible). So is the President's proposal sincere? Or is it more neo-populist theater? Or are the people in the administration so out of sync that anyone can get on any TV show and say whatever they want, even if it means undermining the President himself? You decide.