Financial Regulatory Overhaul

to be pared back? As fault lines emerge among private and public players? Two good articles today on the pace and direction of the regulatory reform of financial services and financial markets. I'm light-blogging the next couple of days, as I'm traveling to Palo Alto for a meeting of the Hoover Task Force on National Security and Law, and so mostly thinking about things like counterterrorism, direct part in hostilities, predators and targeted killing ... but these are articles are timely, well-reported, and useful to those of us keeping track of regulatory reform.

The first, by Zacharay Goldfarb in the Washington Post, Tuesday, June 9, 2009, gives an excellent overview of the "fault lines" developing over the direction of financial services overhaul. The result of the lobbying battles is

likely to shape how much profit banks will make, who can get a mortgage, which federal regulators oversee different corners of the economy -- and, ideally, whether the government is prepared for future financial threats.

With so much money and power on the line, interests inside the government and out are not waiting for the administration to reveal its plan, which sources say will be detailed next week. Lobbyists for financial firms and consumer activists, among others, have been meeting privately with the Treasury Department and the White House to press their views, according to people briefed on the discussions.

So who is on what side of what? What are the fault lines that are forming - fluid, as Goldfarb notes - but coalitions joining and shifting:

-- Financial firms, for instance, have closed ranks in vigorously opposing a proposal for how mortgage lending, credit cards and mutual funds will be regulated.

-- Big banks are squaring off against smaller ones over proposals for consolidating regulatory powers in a few agencies.

-- Banks and hedge funds find themselves on opposite sides in the debate over how to regulate the trading of derivatives, an exotic financial instrument that aggravated the financial crisis.

-- And government agencies, jealous of one another's existing powers and prestige, are also clashing over plans to redistribute their authority.

The article walks, offering very useful interviews, through each of these categories. The second article is from the Tuesday, June 9, 2009, Wall Street Journal, and the front page headlines is quite categorical: "Finance Reforms Pared Back." It offers the case that the "Obama administration is backing away from seeking a major reduction in the number of agencies overseeing financial markets ... [according to sources] the current alphabet -soup of regulators will remain mostly intact."

My feelings about this are very mixed, for all the usual reasons of trying to regulate a system that shares hugely important features as a system (as in, systemic risk) but also has many apples and oranges and kiwis and star fruit, too. The former argues for a single overarching regulator; the latter, for the alphabet-soup. That's all I can say now, but the articles are well worth reading.