Project Economy: Obama Calls For More Regulation Of Financial System

Judging by two days worth of meaty economic policy addresses, it seems as if the fault line between liberals and conservatives hasn't really evolved much over the past few decades. It's still a fairly mundane debate between Neoclassical/marginalist/Chicago school economists on one hand and Keynes/Galbraith on the other. (I don't think supply side tax cuts amounts to an economic school.)

Liberals believe that the debate in this country is so narrowly contained between these two poles that the politics always works against them. Certainly, the language is familiar.

Obama today targeted the regulatory policies of George W. Bush and Bill Clinton. He implied that the Clinton administration was complicit in deregulating the economy to such a degree that it laid the groundwork for the subprime mortgage crisis.

"Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices," he said. He blamed a "$300 million lobbying effort" for hoodwinking Washington.

Obama was referring to the repeal of the New Deal's Glass Stegal regs on banks by the Graham-Leach-Billey bill of 1999, which allowed financial institutions to merge without updating the regulatory framework.

Obama economics adviser Daniel Tarullo said that Obama opposes a resinstatement of Glass-Stegal but wants the regulatory apparatus to catch up. Obama said that banks ought to be required to increase their liquidity and capital requirements. He did not say by how much.

He laid out six principles he said will guide him as president.

One -- "First, if you can borrow from the government, you should be subject to government oversight and supervision."

Two -- better regulation of financial markets at home

Three -- better regulation of worldwide interconnections between markets

Four -- reducing duplicaton among regulatory bodies

Five -- crack down on illegal trading activity

Six -- more monitoring of systemic risks to the financial system.

Douglas Holtz-Eaken, John McCain;s chief policy adviser, said the speech was full of "wonderful words" -- "words you could hear out of a Democrat, words you could hear out of a Republican."

But he said Democrats mischaracterized McCain's response to the crisis as "do-nothing," when McCain, in fact, supported the interventions of the Federal Reserve.

Comments

I worry more about how many Economics classes the reporters covering these topics have taken...etc.

Marc Ambinder obviously never enrolled in a Statistics class.Maybe he did Econ 101 - or whatever....more importantly Macro.

However, his questions about the role of the Federal Reserve in policy matters indicates he has not much experience there either.

So take Marc Ambinder's econ analysis - for little more than than some else's thoughts.

Just because you post a lot - does not make you an authority. It makes you a campaign channel. A gossip. A whatever.

But some analysis is desired! Marc Ambinder would be well-served doing night school at GW or whatever for some basic classes. His level of analysis would be better.

However, this his one political season to make his career.

Posted by chris | March 27, 2008 2:22 PM

Anyone got links to the text and/or video of the speech?

Posted by DSG | March 27, 2008 2:25 PM

Obama clearly laid down the gauntlet both to McCain and to Clinton, but his attack on Bill Clinton's Administration was political posturing against Hillary, and not authentic "post-partisan" economic commentary. The reason for Graham-Leach-Bliley and other deregulatory legislation was the Republican Congress, not the Democratic President (who opposed almost all of it).

All of the blame lies with the Republican Party, even though a minority of Democrats did join them.

Posted by cettel | March 27, 2008 2:28 PM

The Federal Reserve sets policy/restrictions all the time and they can have broad impacts on the economy. Macro 101 I think offers an overly simplistic view of the Fed's role in the economy.

'Policy' is not exclusively restricted to the powers of Congress or the President.

Posted by direwolfc | March 27, 2008 2:33 PM

Most of Obama's economic team are Chicago school economists, even teach there. That is the mainstream political theory. I haven't seen Obama argue for anything that is particular Keynsian. Greater transparency and efficient regulation are not a matter of a particular economic school or political perspective.

As McCain's aide said, "words you could hear out of a Democrat, words you could hear out of a Republican". If they're words you'd hear out of either party, isn't Obama on to something?

Posted by TH | March 27, 2008 2:41 PM

cettel, I read the entire speech and he did not mention Clinton's name once. He pointed to the ending of some regulatory controls during the 90's. Did that happen? Yes.

He did not blame Clinton.

He saved most of his "blaming" rhetoric specifically for Bush and disagreement concerning the future for McCain.

Personally, I think the key statement he made was the importance of regulating companies based upon what they do, not what they are.

Posted by john m | March 27, 2008 2:53 PM

TH, it was boilerplate stuff.

In their analysis of McCain's housing crisis speech a few days ago people missed it but he called for more "transparency" which tends to mean regulation. So most of this stuff is going to get passed anyways as congress is forced to grapple with these issues by the credit crisis.

Just an example of how commong these points are:

Point four (reducing duplicaton among regulatory bodies) is something that Hilary supporter Chuck Schumer has been pushing for awhile, most recently last sunday on ABC. He says we need a national regulator (as is there are something like 18 different bodies) and Jon Kyl (R-Arizona) didn't disagree.

Posted by Jesse | March 27, 2008 3:01 PM

So, did you ever wonder how credit cards are able to legally raise an interest rate from 8% to 39% after one late payment? Pres. Bill Clinton allowed this. Finally, we are seeing a candidate who is speaking about problems that most innacurately ascribe completely to the conservative scapegoat, the Bush family. The Clinton White House created many of our economic problems... just behind closed doors.

After Bill Clinton left office he spent large amounts of time with Pres. George Bush senior (at the Bush home)... so much so that Barbara Bush called Bill "My other son." Now we are seeing why. We are finally seeing the answers come out.

Posted by Kai_in_LA | March 27, 2008 3:23 PM

Having retired from US government employ after 30 years, I admit that my tolerance level for studious/general/"principle" speeches is rather low. (When you were occasionally tasked to write general policy statements, you tend to look for code words, read between the lines, etc.) So, getting to the point: Beyond principle statements, what specifics are contained in this speech that are new & different AND who pays what when? I hate to be so blunt, but I'm guessing someone out there can answer that to save me some reading time. (I know--its lazy of me.)

Posted by christinep | March 27, 2008 3:46 PM

Wow! Bold move Obama. The Clintons will
be against your draconian proposals. The
multimillions they have amassed under the
"old" economic system wouldn't be possible
under your system.

Posted by hombre | March 27, 2008 4:45 PM