The first thing to keep in mind when appraising the President’s new regulatory scheme for the financial sector is that it is merely the administration’s wish list, with the Congress yet to be heard from, and likely to resist adding the chore of systemic risk regulator to the Fed’s burdens. The second and more important although less noted fact is that the blurb on the jacket of an Obama oeuvre, in this case his “Guide to Light-handed Regulation”, is never an accurate description of its contents.
There is a reasonable chance that Obama will get much, although not all of what Treasury Secretary Tim Geithner and economic adviser Larry Summers have advised him to press for. For two reasons: the recent near-melt-down of the financial sector has revealed weaknesses in the regulatory structure, and the president has been careful to treat politics as the art of the possible. He knows that every regulator reports to some congressional committee or committees, and that congressional barons are more than a little reluctant to give up power, which they have to do if the agency they oversee is eliminated or pared down. So initial plans to consolidate agencies have been severely modified, with only a few to be merged — and not the most important ones.
