Two Cheers for Financial Reform

The financial-reform bill that the Senate voted through last night is an improvement on House bill from last fall, and its passage means final legislation is virtually inevitable early this summer. Given the dysfunctional political situation in Washington, and the Obama Administration’s innate aversion to anything smacking of football jersey radicalism, the coming overhaul will be surprisingly broad-ranging, and it should be welcomed. However, it still fails to address some of the root causes of the crisis, some of which will, doubtless, reëmerge in the years to come.

First the good news. Both House and Senate bills establish a new agency to protect consumers from predatory financial companies; force the trading of most derivatives onto public exchanges; oblige Wall Street firms banks to “eat their own cooking” by retaining ownership of at least five per cent of the securitized bonds they issue; and create a new systemic-risk council, which will be responsible for spotting dangerous trends, such as the emergence of another housing bubble. The Senate bill bars banks from investing their depositors’ money in hedge funds, private equity, and other speculative deals; removes some of nba jerseys the loopholes that were in the House bill, particularly in the area of derivatives trading; and orders hedge funds to register with the Securities and Exchange Commission, thus dragging them out of the shadows.

All of these things are sensible, and credit is due to the four Republicans who voted for them: Olympia Snowe and Susan Collins, of Maine; Charles Grassley, of Iowa; and Scott Brown, the Massachusetts freshman. (If the Republican leadership in Congress had had its way, virtually nothing would have been done.) The White House is perfectly justified in calling the reform package the most comprehensive since the nineteen-thirties. But that, by itself, is hardly cause for celebration. We have just lived through the soccer jerseys worst financial crisis and global recession in seventy years, and this week’s renewed turmoil in the markets suggests it isn’t over yet. The key question is whether the reformed financial system will be safe. Or will its risk-taking practices still present a deadly danger to the economy at large? I’m afraid they will.