President Barack Obama's proposal to overhaul the financial regulatory landscape is perhaps the most comprehensive and ambitious plan in 76 years -- since FDR's New Deal ushered in the Securities and Exchange Commission, among other institutions and rules.
Indeed, if the points and proposals outlined in the president's 88-page draft come to pass, this reshaping of federal oversight of the financial system could -- for good or ill -- become the biggest legacy of the economic crisis, and Obama's presidency.
From eliminating the Office of Thrift Supervision to regulating hedge funds, the new rules would give the government greater power over Wall Street.
As for Main Street, the administration proposes creating a new agency to protect consumers when it comes to mortgages, credit cards and other consumer financial products.
If all this comes to fruition, there'll be a new sheriff (or sheriffs) in town. (But don't expect change anytime soon. Congress will wrestle with health care reform first and then move on to these new initiatives in the fall.)
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Whether the legacy is viewed favorably, only time will tell. After all, government regulations can have unintended consequences. Whether these changes will make the system more fair and transparent is anyone's guess. You don't have to be a Libertarian to know that government action can just as easily distort markets as make them more efficient.
Some observers remain keenly skeptical of the administration's efforts. Influential bank analyst Richard Bove of Rochedale Securities believes the Obama rules will add costs to the system but will not lead to more effective oversight.
After all, a regulatory framework is already in place but the political will to enforce it has been absent, Bove says, and that's the way Washington wants it.
Indeed, the only truly aggressive SEC director since the Kennedy administration was Harvey Pitt, Bove says. "(And) when he got religion about regulation, he got removed."
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"What I find to be very disconcerting is the fact that our Federal Reserve is going to have extensive power over much of the (financial) industry," Gerasimowicz says."Why would we give the Fed such powers, especially when they've failed over the past 10 years to monitor, to warn or to bring these types of speculative bubbles under control?"
A new national regulator
The Obama plan seeks to shut down the Office of Thrift Supervision and replace it with a new national regulator."The view now is that you can't let the system function on its own and that it needs some guidance and oversight," Bove says.
The OTS is an easy target. The agency provides national oversight of the thrift industry. Historically, a thrift was a fairly simple business: Take in deposits and make loans, especially mortgage loans. Alas, times and financial innovations change -- and given the rash of bank failures, it's not hard to claim that the OTS was not up to the job.
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President walks fine lineThe regulatory overhaul proposed by the Obama administration aims to strike a balance between free markets and accountability, says CNBC's Steve Liesman. (June 16)
Obama's proposed new national regulator would make it more difficult for companies to pick and choose among regulators -- or even slip through the regulatory cracks. If the new regulator can prevent things like the collapse of Washington Mutual -- once the nation's largest thrift -- then the system and consumer would be better served.
Continued: Less financial risk-taking
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