With trademark forcefulness and rhetorical precision, President Obama presented the cut-down version of his administration's financial regulatory reform proposals earlier this week. Taken at face value, the president's summary represented a dramatic change from what we've been hearing from the White House for the last 30 years. While professing his faith in the free market, he made it clear that the market had failed,thus requiring "a sweeping overhaul of the U.S. financial regulatory system."
The elements of the reform plan have already been widely disseminated and discussed – in some cases, for months. Under the new regime, the Federal Reserve would gain the power to oversee bank holding companies and any other institution whose failure could pose "systemic risk." At least one existing regulatory body – the Office for Thrift Supervision – will be abolished, and a major new watchdog – a "consumer financial product safety commission" – will be created. Capital and reserve requirements for financial institutions will be raised, and derivatives will be more tightly regulated.
The usual suspects on the right are already complaining about "over-regulation," but in the midst of the greatest economic crisis in the world since the Great Depression, they simply have no standing. Far more important are the criticisms from the left, where nearly every single element of the administration's reform proposals has been criticised as too little, too late, too weak and too co-opted by Wall Street. The White House has been silent on the critical issue of what to do about 'too big to fail' institutions. The alphabet soup of regulators with conflicting and contradictory responsibilities remains almost intact (Regulation spaghetti, June 17).
Does anyone else see a pattern? The White House is pushing comprehensive energy legislation, but the compromise bill emerging from congressional negotiations is getting ripped for being too watered down and ineffective. The exact same criticism is levelled at the administration's health care reform proposals. Obama talks a great game; no one can deny that. But there is plenty of doubt about whether the legislation that will emerge from all the horse-trading and cautious political calculations will make meaningful, lasting differences in how the US is governed. The worst fear, on the left, is that a chance that only comes around once every few generations is being frittered away.
And yet, in each case, the same defence can be mustered. The White House is getting what it can, mindful of congressional priorities and resistance, in full knowledge that an all-out blitz on every front would undoubtedly spawn resistance that could sink the whole agenda. Instead of rebooting the entire system, we are just beginning the process of turning a supertanker around. We won't get everything we want at once, but you have to start somewhere – and then just keep pushing. Just the fact that the administration is pushing forward simultaneously, on so many critical fronts, is amazing in and of itself. There is a decent possibility that, by the end of this year, we could see the passage of the most ambitious energy bill in our lifetimes (even if watered down considerably from its original vision); the most significant health care reform in generations; and financial regulatory reform that, just two or three years ago, no one would have even conceived possible.
The real test will be how much the White House keeps pushing after the passage of these bills. How much effort is made to keep tweaking energy policy and health care and education reform? Does regulatory reform begin and end with the current effort, or is the legislation that ultimately emerges part of a longer-term strategy?
Do we really get just one chance to fix everything (which can be wasted in the first six months of a new term), or is the true measure of success determined by how hard and how long the administration keeps striving to change the course the supertanker has been following for so many years? These are unanswerable questions. All we really know for sure is that the tone of government has changed.
Which is important. Near the end of his address, Obama offered up two paragraphs that might end up standing for his entire philosophy of government:
"There's always been a tension between those who place their faith in the invisible hand of the marketplace and those who place more trust in the guiding hand of the government.
"And that tension isn't a bad thing. It gives rise to healthy debates and -- and creates a dynamism that make it possible for us to adapt and grow. For we know that markets are not an unalloyed force for either good or for ill. In many ways, our financial system reflects us. In the aggregate of countless independent decisions, we see the potential for creativity and the potential for abuse. We see the capacity for innovations that make our economy stronger and for innovations that exploit our economy's weaknesses."
Obama has placed himself at the fulcrum where that tension is most acute. One gets the sense that he doesn't mind that the left is urging him to push harder while the right screams warnings of fascism and socialism. It seems to be exactly where he wants to be.