The US President Barak Obama has performed a "balancing act" with his financial reforms, most pundits agree. Even Krugman does good-news-bad-news on this front. A clearer vision of the smallness of the reforms is Joe Nocera's.
The banking world fought like mad dogs to avoid limits on executive comp and won that battle. There IS new regulation of the "shadow banking" sector - one that includes huge lending and securitizing entities whether it be GMAC, GM's loan service or the Blackstone group. But it's all weak.
Why is the Democrat Obama administration softer on finance capital in the wake of its enormous disgrace than are My Capitalist Pals, e.g. Shah Gilani at Money Morning. Here's Galani's summary:
But sadly, true to the inviolate nature of politics and the power of entrenched and vested money interests, this once-in-a-lifetime opportunity to actually tear down the failed structures that guarantee another economic collapse and to replace them once and for all with a substantive regulatory structure that can stave off future financial tsunamis isn’t likely to happen.
It seems that the Obama administration’s sensitivity to potentially jeopardizing what some are pointing to as signs of recovery by not calling for radical regulatory surgery has resulted in signals that the approach will instead be to empower existing regulators with more patches and some needles and thread.
See Gilani's list of everything that is NOT being done that needs doing.
The key problem is that Obama is operating with a Clinton-Republican vision of economics - as what someone called a "Chicago School Democrat." In his speech, Obama claimed, "We're called upon to recognize that the free market is the most powerful generative force for our prosperity -- but it is not a free license to ignore the consequences of our action." The same statement was made many times by Ronald Reagan. On the key matter of the economy, the shift from Republican to Democrat paradigms has not taken place - or rather, they are proving to be exactly the same.
In the wake of the actual failure of the model of self-regulating markets, Obama is maintaining the primacy of these markets, but with a bit more government regulation. Reaganism persists in the total refusal to submit this regulation to any kind of democratic process, in which for example recipients of TARP money are clearly identified, principles are discussed and weighed, the Main Street economy is clearly factored in, and, worst of all, financial discretion is curtailed - it remains maximized in the form of the tiny 5% requirement for assets held against money lent or invested. In this model, the market remains the Lord and master of wealth creation.
Government is the spoiler not the builder.
Recent weeks of “green shoots” rhetoric played an important role. Banks paid back some of their TARP money because they prefer to avoid caps on executive compensation to increasing their lending - money they would have lent has instead gone back to the feds.
Green shoots defined the crisis as a mood swing, a quick and drastic business cycle that is leaving like an unusually serious summer storm. This says that the system is sound, banking and political leaders made no serious mistakes and the ideas of their bubble years remain valid – with a little surgical elimination of some soft spots.
Regulation will remain crippled under Obama because private is still good while public is mostly bad. New private instruments will be invented to stay in the shadows as side deals between private parties. No change in the relation between financial and industrial economies is imagined – there is no Tobin tax, no responsibalisation of finance as one can say in French but not in English.
Meanwhile California is going up in flames - like Main Street pretty much everywhere.