Financial regulation wasn't a tough sell for the Obama administration because anger at Wall St. ran so high during his first two years and eventually became a favorite theme for Republican candidates in 2010.
More than two hundred candidates around the country ran ads depicting their opponents as captives of an avaricious group of Wall St. bankers.President Obama had an unmistakable public mandate for strong action to prevent a repeat of 2008's emergency bailout.
The financial regulation bill won some important victories for average people,particularly in the realm of credit card bills and other consumer related protections.For all the ferocious rhetoric emanating from Washington about indefensible behavior,pretty much nothing of importance had changed in the way these same bankers went about their business.Credit-rating companies still face the same potential conflicts of interest because they are paid by the very parties churning out the debt that is being rated.Trading accounts for more than half the revenue of Wall St. firms and continues dependence on volatile investment profits. There also have been few changes in markets for derivative securities,such as credit-default swaps. Finally, the rules have not been changed concerning the amount of capital that U.S. banks must hold as a percentage of assets(debt).
The Group of Thirty,an organization of senior business executives and academics(led by Paul Volcker),reported that large systemically important banking institutions should be restricted in undertaking proprietary activities that represent high risks and serious conflicts of interest.Yet the legislation continued to abide by such trades on the bank's accounts in risky hedge funds and private equity funds. Limits were placed on the banks(3% of Tier I capital) but in real terms,banks could now put up a lot more money than the Group of Thirty wanted.Mutual funds,insurers and trusts were exempt from these extremely generous limits.After the bill's passage,Goldman Sacks simply reclassified its proprietary traders as asset managers and it made it impossible to distinguish between a trade made for a client and one made on the company's own behalf.
More from "Kabuki Democracy" by Eric Alterman.
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