Obama Is Tinkering with Changes to the Banking System While Big Finance Collapses

By Charlie Cray, AlterNet. Posted January 14, 2009.

If we're going to give the Fed more power, then it's clear that the Fed  needs to made more public. However, unless Congress is willing to undertake a broader examination of the issue, we won't see any other alternatives put on the table and very little resistance to the notion that elevating the Fed's authority is a good idea to begin with.

Bank regulation is a complex and important issue, and at a time when the financial services sector is the most powerful -- constituting some 30 percent of the economy (27.4 percent of all of corporate America's profits in 2007, not including GE Finance, GMAC and other corporate financial divisions); in a time of crisis so much is at stake that we need much more from Congress than a simple rush-to-fix-it proposal.

That's why the first thing Congress should do (and could have done a long time ago) in this area is empanel a commission to examine a variety of important questions, including the elimination (or at minimum, proper regulation) of derivatives; strengthened consumer and taxpayer protections; structural regulation and anti-trust questions (including how to prevent regulatory arbitrage and the dangers of cross-sector integration); and the elimination of offshore tax-haven scams.

What we need is something like a combination of the Pecora Commission that Ron Chernow so wisely reminded us about, and the Temporary National Economic Committee, which began to examine the structure of various industrial sectors in the late 1930s. (Hopefully we don't have to get that far into a depression before Congress does something like that.)

It's an old truism in Washington that how a crisis is solved is determined by the terms of the debate. It's also true that he who pays the piper plays the tune. Although candidate Obama proclaimed his independence from corporate lobbyists and PACs, we learned in today's Wall Street Journal (which used data compiled by Public Citizen) that "90 percent of donations (to Obama's inauguration) received so far have been raised by well-heeled fund-raisers, including Wall Street executives whose companies have received billions of dollars in federal bailout money." As a group, people affiliated with Wall Street firms donated $5.7 million through financial-services industry bundlers.

It looks like "Government Sachs" has yet to be sacked.

Thus, we should be automatically suspicious of any proposals coming out of Washington, starting with Obama's recent request that Treasury release the second $350 billion. But we should also be wary of any proposal for financial regulatory reform that makes a laughable lunge for simplicity, especially if they don't come after fierce debate.

As economist Robert Kuttner, author of Obama's Challenge (and a new report that explains how we should strive to reform the financial regulatory system) said here last week, "the issue isn't whether to regulate or not, but the character of regulation."

We are often told that Heraclitus once said "character is destiny." Judged by his appointments and the direction and timidity of the proposals coming out of the transition team, so far the character of the regulations being proposed by Obama seem destined to fail.

C'mon, Mr. Obama, step it up! What we need is more than a nudge. We need a strong regulatory push.

See more stories tagged with: obama, finance, regulation, economic crisis, stimulus package, financial crisis

Charlie Cray is director of the Center for Corporate Policy in Washington.

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