Monthly Archives: January 2009

A Time for Financial Regulation

Time-for-Financial-Regulation1_large

Photo credit: Obama-Biden Transition Project, licensed under creative commons

Originally published on January 28, 2009 at politicsunlocked.com

President Obama’s financial team, including Paul Volcker, Chairman of the Economic Advisory BoardTim Geithner, Treasury Secretary, Larry Summers, head of the National Economic Council and Austan Goolsbee, Advisory Board Economist, hit the ground running with a comprehensive plan for financial reform geared at filling holes in the existing regulatory system.


The plan is separate from the much discussed stimulus package before congress and provides no bailout, tax cuts or government spending to help the economy.  Yet this plan is a bold act of reasonable and necessary regulation designed to bring the government up to speed in its oversight of the financial industry.  

Against Abuses and Mismanagement, Not Free Markets

The plan calls for:

1. Increased oversight on the part of the Federal Reserve and regulatory agencies such as theSecurities and Exchange Commission.

2. Federal standards and scrutiny of insurance companies, mortgage brokers, hedge funds and credit rating agencies.

3. Oversight and listing or trading through a clearing house or exchange for derivatives and other financial instruments. 

4. Higher capitalization requirements for banks and large investment companies.  

The plan addresses specific concerns which led to some of the biggest financial scandals in history.  

Two points of focus are eliminating conflicts of interest which allowed financial rating agencies to profit from transactions with the institutions they themselves rated and limits on executive compensation for companies receiving federal bailout dollars.

Much of this regulation can be imposed by the executive branch, but some will require the passage of new legislation.  A general belief that significant failings in government oversight led to the current financial crisis is widely held, but even so, new legislation may run into opposition from those opposed to any and all government regulation of markets.  However, support for the proposed rules is coming from many corners of Washington, including Republican political circles.

The Group of 30, a respected committee of governmental and industry representatives, published a report on January 15th, 2009 calling for dramatic regulation and reform similar to the Obama administration plan.  This should be no surprise, as the commission was headed by Paul Volcker, a longtime Obama advisor prior to being named Chairman of his Economic Advisory Board.  Early reviews of the commission report and the administration’s plans are positive. 

Too Much Government Interference?
While there is a risk that new regulation will slow otherwise healthy investment and financial activity, something obviously needs to be done, and there are reasons to have faith in the proposals.  

The new administration’s economic team has a strong free-market philosophy.  The fact that these free-market economists are proposing stricter regulation is a testament to their certainty that the market is not able to correct itself.  The free reign of financial entities created layers of financial miscalculation and mismanagement which now threaten to collapse the entire economy.  

Those concerned that regulation of the financial industry is a move toward Socialism should rest assured that the regulations proposed are no bailout or nationalization.   These rules aim to stop financial mismanagement and criminal fraud rather than affect the redistribution of wealth.

While the traditional view is that stricter regulations do nothing to aid an economy in recession, our current problems may be the exception.  

Much of the distress in the credit market is a result of a failure in confidence.  This lack of confidence surrounding asset valuation, as well as the essential underlying health of the financial system, calls for the imposition of strict, yet reasonable regulations.  Such reform may indeed signal a return to responsible management and begin to restore shaken confidence in the financial system.

Advertisements

Obama Faces an Auspicious Beginning

By Marc Seltzer; originally published on January 19, 2009, at politicsunlocked.com

. .

Four Faces on the Wall

While I was visiting with friends over the holidays – and being treated to delicious homemade tamales – the conversation eventually turned to President-elect Barack Obama.  My friend’s entire family was very excited about Obama, especially since one member of this Mexican-American household had recently taken a position in Washington D.C., working in the Congressional Office of Representative Linda Sanchez.  Soon, one of the children appeared, proudly showing an autographed picture of Mr. Obama.

My friend explained that each generation of the family had placed a portrait on the wall.

Older Mexican Americans, she continued, traditionally have a picture of the PopeCatholicism is the majority religion in Mexico and much of Latin America, and the Mexican-American community maintains their Catholic identity in the United States.  In fact, the immigrant communities in the U.S. have continued to embrace Catholicism, while many in the general population have lessened their bonds with Church traditions.

The second picture was of President John F. Kennedy.  For those old enough to have experienced the election of the first Catholic President of the United States, Kennedy represents the elevation of the Catholic minority in the United States to the mainstream.  Kennedy was also a charismatic orator remembered for inspiring calls to service, guiding the United States though the risk of nuclear confrontation with the Soviet Union during the Cuban Missile Crisis and for proposing to send a man to the moon within ten years.

The somewhat younger generation had placed a portrait of former President Ronald Reagan.  It was during Reagan’s second term that immigration reform legislation allowed millions of immigrants living in the United States illegally to file for legal status and, eventually, citizenship.

The “Amnesty” program, as it was called, offered millions of Mexican Americans, and other undocumented residents living in the United States for at least five years, improved legal and social status and economic opportunity.  Many of the political achievements of the Latino communities in the United States date from this period, as those who had remained politically quiet, gained a voice and seat at the table in American politics.  Reagan’s passionate belief in a “new dawn” of individual opportunity resonated with our new citizens as it did with Americans on Main Street.

These esteemed figures present very different worldviews, but they are all deeply revered by their followers.

The fourth picture on the wall was none other than Barack Obama.

But is it a surprise that Barack Obama is so honored, even before taking office?  Like the other three, the President-elect moved audiences worldwide with his charisma and eloquence, addressing our common problems with faith and vision.

To many, Obama’s election represented, in itself, the rise of the underdog, despite challenges, to the heights of possibility.  Seeing themselves in Obama, children of the world are looking at what this man accomplished and seeing that any individual can strive to greatness.

Obama, Choose Your Battles

Photo credit: Amir Farshad Ebrahimi; license http://creativecommons.org/licenses/by/2.0/deed.en

By Marc Seltzer; originally published on January 9, 2009, at politicsunlocked.com

. .

Obama is undoubtedly feeling the pressure, felt jointly in capitals around the world, to help end the conflict in Gaza, where a fierce Israeli military operation, has resulted in significant death and destruction.

The U.S. has traditionally played a major role in facilitating negotiations throughout Israeli-Palestinian conflicts.  The deeply divisive and longstanding battle goes to the heart of the security and future of the state of Israel and rights to statehood and autonomous homeland for the Palestinian people.

However, despite the best intentions, the conflict in Gaza will not be solved easily.  At this point, President Obama’s involvement risks squandering substantial energy and political momentum desperately needed for domestic reforms.

A lesson from history

Republicans will remember:  The first significant act in office for President William Jefferson Clinton was to revisit the military ban on service by gay soldiers.

It was January 1992, and Clinton took on his own Joint Chiefs to establish a new compromise policy, commonly known as don’t ask, don’t tell.  Merits of the reform aside (which allowed many soldiers serving honorably to continue service) it angered the political right, which took sights on the Clinton Presidency and never looked back.

In retrospect, the action cost the Clinton Presidency dearly.  Despite significant improvements in welfare reform, balanced budgets and economic prosperity during his presidency, the Clinton Presidency never ceased to arouse conservative ire.  The animosity from the right dogged the President in office, played a role in Al Gore’s unsuccessful Presidential bid, and may have lingered into the campaign of Hillary Clinton, eight years later.

All this comes as a warning to President-elect Barack Obama:  Choose your first battles carefully.

Global perspectives

Obama would do well to remember that the U.S. is involved in other conflicts throughout the world, some demanding presidential attention. India, Pakistan, and Afghanistan, for example, have a joint population of 1.3 billion people, with robust nuclear arsenals in the first two and an ongoing U.S. military operation in the third.  All have recently been unwilling hosts to tragic terrorist violence directed against civilians.

While sympathetic in their distress, the civilian population of Gaza remains less than 500,000 people. Israel, and the greater Palestinian population number less than 8 million.

Barack Obama has spoken solemnly about his commitment to the faltering U.S. economy, the foundation of this nation’s prosperity and security.  His steady hand convinced voters that he was best candidate to keep a nasty recession from turning into something historic and much worse.  Americans will be looking to President Obama for leadership.

At least at the outset, Obama must avoid any temptation to solve all the world’s problems.  Being drawn into negotiating a cease-fire in Gaza risks squandering the new administration’s goodwill and focus.