Monday, December 14, 2009

Overhaul of the Financial System

A sweeping financial regulatory reform passed the House last Friday without a single Republican vote. By no means a sexy issue, but a very important one, which is why I write about it. A look at some key previsions:

• establish a council of regulators to police the financial landscape for systemic risks
• initiate oversight of the vast derivatives market
• give the government power to wind down large, troubled firms whose collapse could endanger the entire financial system
• give shareholders an advisory say on executive compensation

At first glance, the legislation seems to do some worthy things. Regulation of derivatives for example is long overdue. I’ll write soon with a more detailed analysis hopefully. The bill is after all 1,279 pages long! In any case, the bill now goes to the Senate for consideration. I think something will pass, although some provisions will have to be watered down to please the Lieberman/Bayh/Landrieu moderate camp. I expect moderates to object to giving the government power to wind down firms on the grounds that it’s too much of a government intrusion into the marketplace.


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