Obama To Make Changes In Regulation

Mar 23rd, 2009 @ 3:43 PM by Alden Smith

This week, the Obama administration will outline changes in regulations to avoid a repeat of the financial crisis that has hampered the banking system and put the economy in the deepest recession since 1982.

Deregulation doesn’t appear to have been the best way for the banks to play.  When it came about in 1999, driven by the Clinton administration and the Republican Congress, the role of the bank was pretty clear-cut.  After deregulation, the banking industry could then enter into insurances and brokerage businesses.  Other factors were interstate banking, and states’ deregulation of banking.  It appears it was rather like giving a five-year-old the keys to a candy store.  Since deregulation, the economy has been in a tailspin.  That’s certainly says a lot for deregulation.

Now we are faced with the biggest worldwide financial crisis that has ever been seen throughout history.  The new proposals outlined by the Obama administration will address the risks that remain in financial regulations.  Two weeks ago Federal Reserve Chairman Ben Bernanke called for regulators to be given the authority to seize firms that have a major breakdown.

The Obama administration is already working on a plan to remove distressed assets from bank balance sheets.  The idea of the administration is to make it enticing for investors to put money into these troubled assets by guaranteeing the transaction.  According to the NBC nightly news, an investor would put in seven dollars, the government seven dollars and the government would guarantee 86.  This puts the government in a very poor position.  With the trillions of dollars being spent on bailouts, printing presses will have to go out over time to churn out enough paper to cover it all.

I have always been for regulation of any industry that handles billions of dollars, especially when that money comes from the taxpayer.  We have seen the huge debacle with the AIG bonuses.  It appears that Wall Street banks and other large entities have this huge sense of entitlement.  To their credit, nine of the 10 AIG executives have given back their bonuses.  It still does not change the audacity that AIG showed when they gave out bonuses on the taxpayer’s dime.  Until such companies show accountability and higher transparency in their dealings with trillions of dollars, I see no way for the situation to resolve.