Financial regulatory reform, part one

Senator Christopher Dodd’s remedy for fixing the nation’s financial plumbing, the Restoring American Financial Stability Act of 2010, is moving closer to being voted on by the full Senate. The Senate is expected to resume its debate this coming Monday.

The bill is the Senate’s version of the legislative Drain-O that is expected to reduce the likelihood of 2008’s financial meltdown and government bailout of financial companies from ever happening again. Specifically, Democrats, including President Barack Obama, believe that in order to keep capital flowing from savers to financial intermediaries to entrepreneurs, government needs to implement a new layer of regulations and regulatory agencies to unclog the financial system when there is a threat of back up.

There is no argument that the system backed up. For example, according to the Federal Reserve, average rates for conventional mortgages fell 200 basis points between the years 2000 and 2008. Consumer credit outstanding started its decline during the second quarter of 2008, months before Lehman Brothers’ declaration of bankruptcy in September 2008.

The recession, unbeknownst probably to all but the most watchful econo-geeks, had been raging for nine months prior to Lehman’s fall. Now the Bush administration and Congress had a decision to make as to how to go about saving the financial system. Their answer was to stabilize the banks with a $700 billion bailout.

With bank investors breathing a sigh of relief and a turn around in the stock market beginning in March 2009, the only problem was …well… everybody else. You know. The general economy? It’s now April 2009 and an angry sector of the electorate is asking, “what about us?“ and wondering why is Washington bailing out Wall Street with tax money from a struggling Main Street.

Now with the November 2010 mid-term elections approaching and unemployment still hovering dangerously close to ten percent, Democrats are doing what they do well: diagnosing the problem as a back up in the financial pipe and blaming it on a buildup caused by bad-behaving investment banks.

The blame part is always pretty easy in politics. The harder part is always getting the policy right.

Pass me the wrench.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
This entry was posted in Economy, Financial Regulation, Obama and tagged . Bookmark the permalink.

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