"Good Rhetoric, Bad Plan [David C. John]
President Obama's Cooper Union speech in support of his financial regulation plan expressed the right goals but the wrong methods to achieve them. It comes at the same time as press reports that the Senate is on the verge of a bipartisan agreement on a bill to pass his plan. Unfortunately, that bill is so deeply flawed in so many areas that nothing short of a complete re-write would be acceptable, and the President's speech shows that he is still focused on the wrong solutions.
The danger is that Senate conservatives will focus on one or two major parts of the president's proposals and decide that fixing them will result in an acceptable bill. This is a prescription for disaster. It is not enough to eliminate the $50 billion bailout fund, find some face-saving language on the consumer financial agency, and have strong language that no future bailouts are allowed.
For one thing, Obama's approach does little if anything to reduce systemic risk. Most of it either repeats powers that the regulators have had for decades, or has nothing to do with the causes of the 2008 crisis. He cited the "Volcker rule," which would place size limits on financial institutions and prohibit proprietary trading, but it is widely acknowledged that if it had been in place, it would not have prevented the 2008 problems. Similarly, the existence of a consumer financial agency has little if anything to do with systemic risk.
No one wants to be seen as supporting the bankers blamed for the crisis, but conservatives should not be stampeded into supporting a slightly watered down version of Obama's plan. His rhetoric, as always, is good, but his plan would do little to prevent the causes of bailouts and a great deal to ensure that new bailouts happen.
— David C. John is a senior research fellow in retirement security and financial markets at the Heritage Foundation."
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