Saturday, June 20, 2009

Bailing out Wall Street

Arianna Huffington
Posted: June 18, 2009 07:20 PM
Mission Shrink: We've Gone From Saving Wall Street in Order to Save Main Street to Just Saving Wall Street
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Remember how, back when taxpayers were being asked to fork over hundreds of billions of dollars to bail out Wall Street, we were told it was essential to saving Main Street?

Well, in just a few months, we've gone from saving the banks in order to save the economy to just saving the banks. It's the opposite of mission creep.

In announcing his proposed "overhaul of the financial regulatory system," President Obama said, "Financial institutions have an obligation to themselves and to the public to manage risks carefully. And as president, I have a responsibility to ensure that our financial system works for the economy as a whole."

But parsing through his 85-page plan, it's not clear how these reforms will ensure that our financial system works for the economy as a whole.

"The Obama plan," writes Joe Nocera in the New York Times, "is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself." For Obama's plan to have any lasting value, says Nocera, "he is going to have to make some bankers mad."

We are already hearing the usual whining from the financial industry about too much regulation and the dampening of incentives. And we are already seeing a concerted push from the banking lobby to kneecap the newly proposed Consumer Financial Protection Agency. But, all in all, there is little there to make bankers mad.

I don't expect there will be too many on Wall Street unhappy with the massive loophole the new plan leaves by calling for so-called plain vanilla derivatives to be traded on an exchange but allowing customized derivatives -- which were at the heart of the financial meltdown -- to remain largely unregulated. This is very good news for the wheelers and dealers who helped turn Wall Street into a casino.

The larger problem continues to be the administration's habit of conflating the health of the Wall Street economy with the health of the real economy -- when, in fact, the two economies have become decoupled. The Dow may be up 30 percent since March, but the numbers that matter most to everyday Americans continue to tell a very different tale.

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