Every time there’s major fraud, like Enron or WorldCom, or a big nasty bubble bursts, there’s a new round of government regulation. But the current financial crisis has been the biggest, nastiest of them all. So President Obama’s response - a historic overhaul of regulatory power - would appear to be proportionate.
But will it work? Will it prevent fraud, crises, and bubbles, or just be a royal pain in the you-know-what that taxes every company, hinders our competitiveness in an increasingly global market, and does little to protect investors … like Sarbanes-Oxley?
Don’t get me wrong, I applaud Obama for doing something. I’m just not sure it’s the right something. And I - like many clear-thinking members of Congress - have a number of concerns.
Obama’s plan gives unprecedented regulatory power to the Federal Reserve, which is neither a federal agency nor a reserve bank, as the name implies. It is in fact an independent agency chartered with setting monetary policy. And lawmakers are concerned that Obama’s plan will give the Fed authority that goes well beyond its mission and competency.
According to the Wall Street Journal:
In the first formal airing of concerns with the Obama plan, lawmakers focused on the linchpin of the proposal: giving the Fed broad authority to regulate systemic risk and examine any firm that could threaten financial stability.
[Treasury Secretary Tim Geithner] said the head of the Federal Reserve Board would be held accountable for systemic risks to the financial system.
“I personally believe this represents a grossly inflated view of the Fed’s expertise,” [said] Sen. Richard Shelby (R., Ala.).
“I think that’s really crossing a line and a sort of fundamental change,” Sen. David Vitter (R., La.), said. “All of a sudden, the Fed is acting more like a department of the government than an independent bank.”
[Senate Banking] Committee Chairman Christopher Dodd (D., Conn.) also raised questions about the use of the Fed for such an overarching task.
Geithner also indicated the need to rethink the government’s role in housing, referring to Fannie Mae and Freddie Mac. Now that, in my opinion, hits closer to the core of the real issue that Obama’s plan fails to address.
In Who’s Responsible For the Financial Crisis? I named a number of bank CEOs and the now indicted former-CEO of Countrywide, Angelo Mozilo, among others. But I also implicated former heads of the Fed, the Treasury, Fannie and Freddie, and the current chairmen of the House Financial Services and Senate Banking committees - Barney Frank and Chris Dodd.
The problem is that government regulation always seems to focus outward at the other guy instead of inward at how we govern and regulate with a focus on conflicts of interest. Any effective system of regulation and oversight needs both, with checks and balances between the two. Unfortunately, it looks to me as if Obama’s plan still has the foxes guarding the hen house.
But that’s just me. Do you think Obama’s proposed regulation will help to eliminate fraud, crises, and bubbles, or just bog down corporate America at a time when we can least afford it?
