President Barack Obama has become the chief sales officer for market regulation, a theme he has been labouring over for some time. Cooper Union, its location pitched within a few miles of Wall Street, doesn’t seem to be tiring of luminaries with their addresses of various gravity and significance.
The proposed regulations, at least on paper, look far reaching. A body would be created to detect financial threats. The Financial Product Safety Commission has the potential to be an effective institution. Consumer rights would be enhanced, and banks would be wise to adhere to their safety. The more bad loans, the greater the instability of the system as a whole. The Agriculture Committee legislation bars banks from trading in derivative instruments and forging deals with other clients, thereby subverting speculation. The Banking Committee, however, disallows speculative trades with their own accounts, though its bill proves more lenient on banks in terms of setting up derivative arrangements for clients.
But a thought, to carry weight, must surely be believed and acted upon by the person advocating it. Joseph E. Stiglitz was correct to point out that the regulatory system (if one can call it that) failed ‘partly because we had regulators who didn’t believe in regulation’ (Politico, Apr 12). For that reason, a wary eye should be kept on the Federal Reserve, that less than impressive body that did so little to halt the slide to economic ruin.
There was nothing new in this particular stage show by the President. The message was familiar – Wall Street and Main Street again make their appearances, jostling for poll position in the American imagination. Business America, seen as innovative yet reckless and unruly; and struggling, ‘common’ America, battered by financial ruin. The consensus-driven politician calls the tune for unity, an arrangement of mutual wealth production: the boardroom managers on one side; the rest of America on the other, both shaking hands in improving the lot of USA Inc. America must produce more and consume less. Make money, and yes, oodles of it – but do it with a sense of corporate responsibility.
Obama’s desire to constrain the habits of a profligate and ruthless Gekko may be one thing; how he seeks to implement it may be quite another. America is a business nation narcotised by the illusion of ‘free markets’. (When in history have markets been truly ‘free’ is hard to say.) There remain strong swathes of the population (and Congress) suspicious about a burgeoning government.
For that reason, selling such ideas as the proposed Volcker Rule will be like selling the viability of amputation to a suffering patient. Limiting bank size and the proprietary risks they can dabble has been and will continue be a formidable sell. Social-Darwinian impulses continue to be rife, and these are hardly going to go away. The Republicans are peddling a curious idea that their opposite numbers endorse, without qualification, the idea of a colossal fund designed to bail out ailing banks. The Democrats will just have to show how the Republican drive for reform in this regard is virtually non-existent. Wall Street is short of friends, and is hoping to find them in the GOP. What is needed is a good shot of populism.
The risk for Obama now is not a fear that nothing will be done, but too little. How derivatives are dealt with, or how consumer protection is hammered out in the final product, will continue to bother the policy makers. Teeth will have to be inserted into public authority. Banker and financiers must be made to feel that prudence will be looked upon favourably; and profligacy condemned and punished. Excessive growth in bank liabilities might not always be easy to gauge, as Paul Volcker has admitted, but like ‘pornography, you know it when you see it’ (WSJ, Feb 4).
The armies of lobbyists representing the interests of Wall Street will be hoping that Congress spends time halting the momentum for change. If the economy improves, the desire for reform will subside. There are few chances of that happening thus far and the administration will have to continue making hay while the sun of reform shines.
BINOY KAMPMARK was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: email@example.com