Sunday, June 21, 2009
FDR Signs the second Glass-Steagall Act, June 16, 1933
Franklin Roosevelt made Wall Street good and angry with his overhaul of the financial system and the imposition of strong government oversight during the New Deal. But one can hardly imagine bankers getting little more than ruffled over President Barack Obama’s plan released this week, despite the president’s insistence that his proposal is the most sweeping transformation since FDR’s days, writes Joe Nocera, business columnist for The New York Times. Oh sure, Obama’s plan is big (88 pages big), but in terms of scope and breadth—“and more important, in terms of its overall effect on Wall Street’s modus operandi—it’s not even close to what Roosevelt accomplished during the Great Depression,” Nocera insists.
Obama’s plan does do some things, addressing derivatives, mortgages, capital, and insurance companies. It gives new regulatory powers to the Federal Reserve, creates a new agency to help protect consumers of financial products, and makes derivative-trading more transparent. And the federal government would gain the power to take over large bank holding companies or troubled investment banks. But for the most part, the plan amounts to little more than “additional regulation on the margin” and “nothing that amounts to a true overhaul.”
When it comes to the so-called banks that are “too big to fail,” the Obama administration is still holding to this notion, which gives bank executives at such institutions little incentive to really clean up their act, Nocera argues. And the effort to regulate the derivatives market only goes after the “vanilla” kind that isn’t worrisome, and does little more than shine a little light on the “bespoke” derivatives that caused so much trouble on Wall Street.
When FDR acted, his reforms stood up for about sixty years before things began to crumble. “If Mr. Obama hopes to create a regulatory environment that stands for another six decades,” Nocera writes, “He is going to have to do what Roosevelt did once upon a time. He is going to have make some bankers mad.”
-Noel Brinkerhoff
Only a Hint of Roosevelt in Financial Overhaul (by Joe Nocera, New York Times)
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