Finance Industry Regulatory Reform: Not So Much

The Wall St. Journal reported something quite major today: that the Obama administration is severely cutting back on its ambitious plan to completely remake the regulatory environment for the financial markets. They had originally said their goal was to combine and consolidate existing agencies to remove inefficiencies and overlapping jurisdictions. Now, well, they just want to add some enforcement powers to the existing agencies. And they expect to still push for the government to have authority over hedge funds. And oh yeah, the WSJ says, we want to make clear that we can take over troubled institutions. That one makes many nervous as they believe it is a step toward too much government control of the private sector. The key is how they will use this power: hopefully, to paraphrase the Wizard of Oz’s good witch Glenda, “for good.”

So why not do what they were thinking, such as combine the SEC with the Commodity Futures Trading Commission? Or the several agencies that oversee banks? According to the article, it seems the Administration does not feel it is a necessity, and now want to limit themselves to things that are necessary rather than by choice. They feel they can get a lot of what they want, such as tighter power over credit risk issues, through rulemakings rather than restructuring the entire oversight function. They worry that political infighting will stall the process more. Well, duh. One wonders how much SEC Chair Mary Schapiro was involved in this process. She also used to run the CFTC. Wondering if she recommended putting off combining SEC and CFTC, and if so why. Realize also that it was starting to look as if Congress did not have a sufficient appetite to take on this challenge and the major political and lobbying forces who would oppose change. That also may have had a hand in the decision.

Was it time for some of these reforms to go to the back burner as the Obama Administration very possibly realizes it has taken a very, very, very large bite out of the “let’s do big things in every single sector” apple? Yes. Is it tough for Obama to bailout (and now run) the auto companies and the entire financial sector, address skyrocketing unemployment, implement the $1.2 trillion stimulus package where only 3% of the money has been spent almost six months after passage, decide under what conditions banks should be allowed to repay their TARP money (they are ready to repay about $50 billion already), completely redo everything about our healthcare system, deal with Iraq, North Korea, Iran and yeah that nasty insoluble Israeli-Palestinian conflict, get a new Supreme Court nominee with some questions about past statements onto the Court, and still manage to get a few date nights out with the Mrs.? Imagine what would happen if that real 3 am phone call comes in the middle of all this.

Obama realizes he has limited time for his honeymoon. He has already gotten one that is much longer than pretty much all his predecessors, at least in my adult lifetime. Yes, even Reagan. There is so much he wants to do this year. The Republicans are discovering, for now, that he is teflon. He is truly beloved, and even most Republicans show respect for his intellect, drive and sense of mission. But if even Rahm Emanuel thinks it’s time to hold the horses just a little bit on certain things, and we avoid having to watch our financial regulators do nothing for two years while they fight about how to reorganize, I’m not so sure I’m too unhappy.

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