Regulations

The Obama administration is set to release a proposed set of regulations that are intended to provide better controls across the financial industry. Although the details have not yet been released, I can say, without equivocation, that their intentions are pure.

Major financial institutions, insurance companies, hedge funds, and Wall Street in general exhibited such breathtaking irresponsibility that they deserve a restrictive regulatory environment. If conservatives argue that strict regulation will slow the economy a bit, my response is that the irresponsibility of the financial community slowed the economy a lot. Worse, it wiped out the savings of those who invested wisely in a risk averse manner over many years. Unlike big banks and insurance companies, those people will never get a bailout.

President Obama commented on this recently:

"On a whole host of these issues, we want to do the minimum possible to assure that every stakeholder in the marketplace -- consumers, workers, investors, entrepreneurs -- have a clear set of rules of the road, they know what they're getting themselves into, they're making decisions based on the pursuit of profits," he said. "But we are not setting up so few rules that you have the kind of situation that we saw last year where we really were on the verge of a financial meltdown."

Gerald Seib of The Wall Street Journal comments on the regulations in broad terms:

Of course, it's hard to know what the right amount of rule-making really is, which is why the plan the president puts out Wednesday will draw fire from both his right and left.

The Federal Reserve will get more powers to oversee big financial institutions, large firms will have to raise more capital and meet higher liquidity standards, hedge funds will face higher scrutiny, and a new agency will be set up to protect consumers and small investors.

As soon as his plan is out, though, the president will have the Goldilocks problem. Some will think his proposals too hot, some too cold. Only some will think them just right.

The right rules, he [Obama] said, will allow a recovery that isn't built on speculative bubbles -- and that don't stifle financial marketplace innovations that have helped lots of small guys in recent years.

The White house is doing the right thing. Unlike some of their other ill-conceived and overly ambitious programs, this regulation is needed and should be instituted without delay.