The New Master of Wall Street
WSJ
President Obama is a gifted man, but until yesterday we hadn't known that his achievements include having predicted the financial panic of 2008.
It was a "failure of responsibility that I spoke about when I came to New York more than two years ago—before the worst of the crisis had unfolded," Mr. Obama said yesterday in a speech on financial reform at Cooper Union in New York City.
"I take no satisfaction in noting that my comments have largely been borne out by the events that followed."
We wish for the sake of our 401(k) we had noticed this Delphic call, not least when Senator Obama was opposing the reform of Fannie Mae and Freddie Mac. But let's not fight over history.
The current reality is that the President had better be very, very smart because the reform bill he is stumping for would give him and his regulators vast new sway over financial markets and risk-taking. his is the most important fact to understand about the current financial reform debate.
While the details matter a great deal, the essence of the exercise is to transfer more control over credit allocation and the financial industry to the federal government.
The industry was heavily regulated before—not that it stopped the mania and panic—but if anything close to the current bills pass, the biggest banks will become the equivalent of utilities.
The irony is that this may, or may not, reduce the risk of future financial meltdowns and taxpayer bailouts.
A new super council of regulators will be created with vast new powers to determine which firms pose a "systemic" financial risk, to set high capital and margin levels, to veto certain kinds of business for certain firms, and even to set guidelines for banker compensation—or maybe not.
The point is that these crucial questions will be settled not by statute, but by regulatory discretion after the law passes.
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