President Obama released a statement of praise for the House passage of financial services reform last week. In the statement, he supported the initiatives as a way to establish better "rules of the road" for activity on Wall Street. And he was encouraged by the steps towards promoting better competition. I'm not sure he read the same bill as the one that passed the house though.
The irony of the president's rhetoric is that it is largely the proper attitude, yet the initiatives he supports towards the goals of creating a better framework for the financial services industry do not accomplish what he believes they do. Instead, they wind up hurting America—including consumers and small businesses.
Here is a breakdown of the core of his brief speech and some comments:
President Obama: “I look forward to signing a strong bill that establishes and enforces clear rules...”
I agree that we need a bill to better do this.
“...closes the loopholes that allowed Wall Street firms and other creditors to game the system and evade accountability...”
I agree also that this would be beneficial... though it should be noted that a regulatory structure including Basal capital requirements, mark-to-market accounting rules, and a credit rating oligopoly were a chief cause of the problems within loopholes and more regulations aren't the way to fix those problems.
“...protects consumers and investors from predatory lending and deceptive financial practices...”
This still has not been proven to be wide spread, and is an assumption of the administration.
“...and gives the government the necessary tools to prevent any institution from posing a risk to the whole system or making the American taxpayer collateral damage in the event of future turmoil.”
It is just assumed that the government can use the “necessary tools” well.
“The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington.”
I agree with the President wholeheartedly on this point.
“We have a responsibility to learn from it, and to put in place reforms that will promote sound investment, encourage real competition and innovation...”
I agree, absolutely.
“...and prevent such a crisis from ever happening again.”
It is ridiculous to believe we can prevent these kinds of crises from happening again in the future. Every time we have a crisis we try to "prevent it from happening again" and fail. The best we can do is build a regulatory framework that allows for healthy and stable failures to minimize the impact that future crises will have on the market place.
It is amazing how much agreement I can have with the president's vision, while being in such opposition to the tangible policy choices that stem from that vision. So many of the president’s words sound right, but the actions are wrong. If we want to encourage competition—then why a CFPA that will hurt competition? If we want to prevent firms from posing a systemic risk—then why formalize the policy of too big to fail and create a bailout fund that will just encourage irresponsible risk taking? Very frustrating.
Read the full statement here.
And here is a list of the five main reasons that the House reform bill will be bad for America.