Obama Is Right On His Wall Street Regulation Analysis

| by Nicholas Roberts
President Barack ObamaPresident Barack Obama

President Barack Obama met with Federal Reserve Chair Janet Yellen and other top regulators on March 7 to discuss the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act from 2010.

During the meeting, Obama railed against rhetoric from critics on both the left and right against his administration’s approach to Wall Street regulations in the wake of the 2008 financial crisis, reports Reuters.

Obama’s analysis is mostly correct, although his insistence in arguing that his administration’s regulatory policies have worked is unlikely to resonate with critics who still feel the after-effects of the crisis.

Dodd-Frank, for example, has been assailed by right-wing critics for helping to lead to bank consolidation while making lending harder for small banks, depressing the domestic economies of many areas around the U.S.

But Dodd-Frank has also effectively done what many said needed to be done in the wake of the 2008 crisis: It drastically slowed lenders from taking reckless chances and cut down on the rate of home defaults to the lowest rate in U.S. history, CNBC reports.

This, of course, has come at the cost of an incredibly large amount of paperwork and longer waiting times for basic loans, which would seem to vindicate the right’s argument somewhat. If a Republican president is elected in November, this aspect of Dodd-Frank -- as well as the entire law, possibly -- may be up for debate again.  But the president is correct that the new regulations seem to have drastically cut down on risk in the market for home mortgages.

On the left, critics like presidential candidate Sen. Bernie Sanders of Vermont argue that the large banks have become more powerful during Obama’s presidency, and has called for them to be broken up. Such an action would presage a bitter political fight and the ultimate economic outcome would be unclear, and the consequences certainly need to be explored more fully.

But aside from this, breaking up the banks into smaller entities would not, by itself, prevent another financial crisis.  Financial crises instigated by smaller banks happened routinely during the 19th century, and the Savings and Loans crisis of the 1980s and 90s did not begin from the highest level of the banking system.

The president ultimately acknowledged there are still areas with ample work to be done, such as rules for hedge funds and asset managers in the "shadow banking system," Reuters reports.

And Obama urged people to put pressure on Congress not to cut the budgets of regulatory agencies, a priority that is greatly reflected in the president’s final year budget, according to The Hill.  And yet this is where his argument also becomes the weakest.

The Democratic Party has suffered greatly at the state level throughout the country during Obama’s presidency, and is now contending in an election where a fully Republican government has become possible.

There is no doubt such a government will try to undo as much of Obama’s regulatory policies as possible. If that happens, Obama’s speech here is not worth anything as his agenda will be largely undone. His exhortations to pay attention to the budgets of important regulatory agencies in the financial sector may have come too little, too late.

Click here for the opposing view on this topic.

Sources: Reuters, CNBCThe Hill / Photo credit: Wikimedia Commons

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