FinReg – Financial Regulation – Reform

Yesterday while listening to NPR, I heard someone explain in terms clearer than I’d heard to date what it means to have rules in place for how Wall Street, the investment banks, depository banks, and all the others operate.

There’s no such thing as a truly and fully “free market” — the absence of regulation. Whoever it was that spoke drew a delightful parallel. Imagine playing football in such a free market with no referee because there are no rules to enforce. Hey, I know what! Three yards to convert to a first down and 8 attempts to get there. Oh, but wait. I know what. Only my team and I get the ball and every down is a first down. We could move the goal post closer, too. Or how about baseball? Ah, today, there are only two bases because four makes scoring so difficult. Twelve strikes and you’re out. Or better yet, you’re out before you even get to bat. No matter what, I automatically win and I decide the score. And you don’t get to object, either, because with no rules, there’s no basis.

Genius! Absolutely brilliant. For me.

OK, back to reality. Here is the complete transcript of Obama’s speech yesterday at Cooper Union in New York. It was the second time he spoke there. The first was during the campaign.

An excerpt:

As I said two years ago on this stage, I believe in the power of the free market. I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings. But a free market was never meant to be a free license to take whatever you can get, however you can get it. That is what happened too often in the years leading up to the crisis. Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business, or save for retirement. What happens here has real consequences across our country.

Another:

And unless your business model depends on bilking people, there is little to fear from these new rules.

And the money shot:

I read a report recently that I think fairly illustrates this point. It’s from Time magazine. And I quote: ‘Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed … would rivet upon their institutions what they considered a monstrous system … Such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.’ That appeared in Time magazine — in June of 1933. The system that caused so much concern and consternation? The Federal Deposit Insurance Corporation — the FDIC — an institution that has successfully secured the deposits of generations of Americans.

So the question now is, will the reform package be enough? I hope so…but I doubt it.