Financial Reform, Words and Deeds

It's good that Barack Obama is an agile basketball player because on
financial regulatory reform he's having to straddle an ever widening
chasm between his words and his deeds.

Obama said: "Millions of Americans who have worked hard and behaved
responsibility have seen their life dreams eroded by the
irresponsibility of others and by the failure of their government to
provide adequate oversight. Our entire economy has been undermined by
that failure."

"Over the past two decades, we have seen, time and again, cycles of
precipitous booms and busts. In each case, millions of people have had
their lives profoundly disrupted by developments in the financial
system, most severely in our recent crisis."

Strong words, even though he didn't include "corporate crime, fraud
and abuse" to replace the euphemism "irresponsibility." One would
think that his 88 page reform proposal to Congress would be up to his
words. Instead he provides Washington aspirins for Wall Street brain
cancer.

The anemic nature of these reforms ostensibly designed to prevent or
deter another big bust on Wall Street and its hostage grip on the
nation's savings and investments immediately drew the ire of
well-regarded business columnists.

Joe Nocera of the New York Times wrote the "the Obama plan is little
more than an attempt to stick some new regulatory fingers into a very
leaky financial dam rather than rebuild the dam itself." Nocera
asserts that the reforms do not "attempt to diminish the use" of the
customized type of derivatives which trillions of risky dollars
generated "enormous damage to the financial system" ala A.I.G's
collapse. He notes President Roosevelt's far more fundamental reforms,
included the Glass-Steagall Act, which "separated banking from
investment." It prevented a lot of banking mischief until Clinton, his
Treasury Secretary Robert Rubin and Citigroup got Glass-Steagall
repealed in 1999. Obama is not proposing to re-instate this critical
safeguard. Nocera said, firms "will have to put up a little more
capital, and deal with a little more oversight, but....in all
likelihood, [it will] "be back to business as usual."

Star business reporter, Gretchen Morgenson, ripped into the Obama plan
in the Sunday New York Times for doing too little to eliminate
systemic risks posed by financial firms that are "too big to fail."
"Rather than propose ways to shrink these companies and the risks they
pose, the Geithner plan argues instead for enhanced regulatory
oversight of the behemoths." She implies that taxpayers will be on the
hook for even greater bailouts in the future.

A measure to prevent the "too big to fail" bailouts was suggested by
none other than Obama's current economic advisor, former Federal
Reserve Chairman, Paul Volcker. Speaking in China, no less, Volcker
recently said the Federal government could simply prevent these big
banks from trading for their own accounts. But Obama is not listening
to Volcker these days. Instead Treasury Secretary Timothy Geithner and
White House advisor, Larry Summers, who played important roles in the
past decade facilitating the enormous speculation on Wall Street, have
got Obama's ear.

The President's plan omits, (1) strong antitrust enforcement, (2)
tough corporate crime prosecution, and (3) more authority for
shareholders, who own their companies, to control their hired bosses.
The plan should have included giving shareholders the decisive power
to set executive compensation-the perverse compensation incentives
helped push companies to wild speculation.

The reform plan's defaults go on and on. There are no mechanisms to
encourage millions of investors to band together in Financial Consumer
Associations. In 1985 then Cong. Chuck Schumer (Dem. NY) introduced
such an amendment to the savings and loans bailout legislation. It did
not pass.

What about sub-prime mortgage securities? Banks would be required to
retain just a five percent stake before handing them off to other
syndicates. This hardly is enough to induce prudence by banks selling
these mortgages to impecunious home buyers.

Obama does propose a new financial consumer regulatory agency. But
unless he appoints someone, as chair, like tough-minded Harvard Law
Professor, Elizabeth Warren, who advanced the idea, the regulated
financial firms will, as usual, take over the agency.

The Washington Post's Steven Pearlstein, derided the Obama proposals
for not being "grounded, first and foremost, in a thorough and
independent analysis of how the crisis was allowed to develop and what
regulators did and didn't do to prevent it...." He was disappointed by
the lack of controls over "hedge funds, private-equity funds or
structured investment vehicles."

Obama did strengthen the fiduciary duties to investors by stock
brokers. But he did not give these defrauded investors any better
civil action rights in court beyond what they were left with by the
hand-tying securities law passed in 1995.

So now it is up to Congress and its hordes of banking and insurance
lobbyists. Good luck, savers and investors. Unless that is, you're
doing your business with credit union cooperatives which don't gamble
with your money.