Obama’s Failing Financial Reform Grades

It is hard to understand, let alone cope with, the kid glove treatment that the Financial community is getting from the Obama Financial team. Consider now that the population not just of the United State but the Whole World is suffering one of the worst recessions since the Great Depression. Also an even worse Depression was narrowly averted twice in the Fall of 2008 with the TARP rescue funds and then the rescue of AIG after the markets were allowed “to work” with the failure of Lehman. Even worse yet the US and World economies are still teetering on the brink of Finacial disaster – swings in the value of the US Dollar

both deserve failing grades because they simply do not tackle the many complexions of fairness that have gone wanting in the US political economy

and/or interest rates could still bring a second wave of financial chaos. Given this backdrop, the examples of Financial Kid Glove Treatment cited below are dismaying:
1)No compensation limits for financial executives even though the consensus among even Wall Street observers [this Wall Street Journal posting is particularly apropos] is that huge payments to a broad range of financial executives were instrumental in producing the perverse risktaking that brought the system down. The only Obama restraints are towards TARP funded financial institutions and so they are working triple overtime to get out from their government IOUs, delaying the recovery in lending markets.
2)Only basic reforms to derivative markets which are missing the key destructive features of derivatives. Given that diverse observers from Warren Buffet to Nassim Taleb to George Soros have commented on the dysfunctional capacity of unregulated derivatives – one would think that the government would want to regulate and refine exactly what type of derivative instruments can be safely traded before they are unleashed on markets again.

3)Basic reforms to SEC, CFC, DOJ, FBI, FTC were leaving problems like controlling inter-agency turf wars, limiting incestuous and dysfuntional relationship between agency and to-be-regulated financial institutions. The real problem here is that ideas for reform have been severely restricted because so called partisan players will wreck any attempts at meaningful reform. However, there is a counter argument to this notion as seen here. But when Wall Street complains about the fairness and effectiveness of regulation, you know you have problems.

4)Financial institutions : no criminal cases but for the obvious slam dunks for gross financial misconduct underlining that the “the white collar crime” and “raiding the commons” and “pass it off on the masses” ploys are still imminently workable. This in turn perpetuates the notion that for financial elites skirting and/or breaking the law is doable especially with the right counsel and friends. This has to be crippling to the rule of law in the nation – one for financial elites, and another for the unbeknighted masses.

5)The Obama Financial team is perpetuating the wrong level of rewards for finance. More than 35% of total US profits were concentrated in the financial sector in 2007. Only the financial sector has seen multi-billion dollar annual pay packets. Financial average compensation dominates all other sectors by a factor of 2 and growing. This has two debilitating effects: 1)kid gloving Finance sends the wrong signal about fairness and distributive justice just when that is becoming not just a national but world wide concern. Terrorism is really a response to self-perpetuating inequities. Also every developed and developing country has distributive justice as a simmering issue. 2)Devoting a largesse of rewards on Financial firms and players deprives the “trickle down” starved manufacturing sector and other job producing industries  of the capital and rewards that are going to be necessary for the Innovation and Green Revolutions the Obama administration want to unleash in order to create jobs as the key to a recovering economy.

The Harvard Business Review has devoted its June issue to Rebuilding Trust. Interestingly the questions of fairness in the political/economic scene never really gets addressed. Its skirted about  just like in Obama’s Financial Reforms – both deserve failing grades because they simply do not tackle the many complexions of fairness that have gone wanting in the US political economy.