Obama's financial regs: 'Wild risk'-watch

by Mark Silva

A not-so-long-time-ago, in a universe before the federal government had engaged in a multibillion-dollar bailout of the financial and automotive industry, then- Treasury Secretary Hank Paulson called for a sweeping overhaul and streamlining of the nation's financial regulation.

Now, in the aftermath of the failure of big banks, the bankruptcy of two of the Big Three automakers and falling home values and soaring unemployment, President Barack Obama is ready to propose a new regulatory framework to guard against the "wild risk-taking'' that helped precipitate a global recession. It's expected that Obama will propose a new Consumer Financial Protection Agency tomorrow, and call on Congress to enact regulatory reforms to guard against another crisis.

" The broad principle is that a lack of oversight, a series of regulatory gaps allowed financial institutions -- not just banks, but non-bank institutions -- to engage in wild risk-taking that didn't simply imperil those institutions but imperiled the United States economy and had a profound recessionary effect on the world economy,'' Obama said today, in a Rose Garden appearance with the leader of South Korea. " We have to make sure that we've got a updated regulatory system that hasn't been significantly changed since the 1930s to deal with enormous global capital flows and a range of new instruments and risk-taking that has been very dangerous for the American people.

" We are going to put forward a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again,'' Obama said, calling today for Congress to "work swiftly to get these laws in place. I want to sign them, and we want to get them up and running.''

In the process, the president says, "you'll see that we have not, in fact, added a whole host of regulatory agencies. In fact, there's going to be streamlining, consolidation, and additional overlap so that you don't find people falling through the gaps, whether it's on the consumer protection side, the investor protection side, the systemic risk that we need to make sure is avoided on all those issues that's going to be a much more effectively integrated system than previously.

"But it's going to be, as usual, a heavy lift,'' Obama said, "because there are going to be people who want to keep on taking these risks, counting on U.S. taxpayers to bail them out if their bets go bad. And you'll hear a lot of chatter about, we don't need more regulation -- government needs to get off our backs.

"There's a short memory, unfortunately, and I think that's what some of the special interests and lobbyists are going to be counting on, that somehow we've forgotten the disaster that arose out of their reckless behavior,'' the president said. "And I'm going to keep on reminding them so we make sure that we get something in place that prevents this kind of situation from happening again.''

Talk about short memories:

It was a little over a year ago that Paulson, then-President George W. Bush's treasury secretary, called on Congress to streamline the government's vast array of regulatory agencies.

His plan -- a "Blueprint for Financial Regulatory Reform'' -- as we reported here: "arrived in the midst of a home mortgage crisis in which spiraling foreclosures had rippled through the economy and already undermined one major Wall Street investment firm, Bear Stearns. But the broader goal of modernizing regulation to keep pace with rapidly changing global financial markets has been under study for more than a year....

"The United States can no longer rely on the strength of its historical position to retain its preeminence in the global markets,'' the Treasury Department said then in a summary of the secretary's proposed blueprint.

Much of what Paulson envisioned then - such as a merger of the Securities and Exchange Commission with the Commodity Futures Regulatory Commission - would require congressional action.

"There's a lot of temptation to view this through the lens of what's in the newspapers today,'' said David Nason, then-Assistant Treasury Secretary for Financial Institutions. "But this is a project we've been working on for over a year.''

Wonder if they'll still be working on this a year from now.