Wednesday, June 17, 2009

Obama's Financial Regulation Plan

I have commented quite a bit on the plan in recent days. Now that Obama has released pretty much what has been expected, here's the take from as different source, Larry Kudlow:

The big winner of the Obama financial-regulation plan appears to be the Federal Reserve, which becomes the consolidated supervisor of large, systemically important banks.

This is like the fox guarding the henhouse. After all, the Fed’s overly loose money policies created the asset bubble — including housing, commodities, and energy — in the first place. Near-zero interest rates, huge money growth, and total disregard for the plunging dollar are what set up the housing boom and the unfortunate overleveraging by consumers, mortgage borrowers, and Wall Street securitizers.

There's nothing to argue with Kudlow about here, he nails it. The only additional point I would make is that with most of the new power going to the Federal Reserve, and Larry Summers directing where the power went, Summers appears likely to be the new Fed chairman once Bernanke's term is over at the end of January 2010.

Kudlow continues:

Then there’s the new Consumer Financial Protection Agency. This provision was apparently written by liberal-left Harvard professor Elizabeth Warren, a staunch foe of free markets and an overzealous supporter of consumer-as-victim rights. Among its massive powers, this agency would enforce the Community Reinvestment Act, which has for years forced banks and other lenders to throw mortgage money at borrowers who cannot afford it. And the consumer protection would reach deep into bank supervision as well. What a mess.
Kudlow is breaking news here. I wasn't aware that Warren wrote this provision. She is the head of the Congressional Oversight Panel that is monitoring the Treasury's implementation of the Troubled Asset Relief Program.

Her attempts at expanding the Oversight Panel, far beyond its task, resulted in two members of the panel writing a dissent.

At the time I wrote:

The head of the panel is Elizabeth Warren. Warren is a Harvard Law School professor and has collaborated with Americans for Fairness in Lending.(AFFIL)

AFFIL is "a non-profit organization designed to draw national attention to the unregulated lending industry in America. AFFIL’s ultimate goal is government regulation of the lending industry to protect American consumers from financial products which deplete assets and can lead to bankruptcy and foreclosure." AFFIL is an umbrella organization for groups working on lending and asset-building issues. Its official partners include: ACORN.

Thus, this panel is very strongly influenced by President Obama operatives. The AFL-CIO connection brings in Obama's union support and ACORN is, of course, the powerful grassroots organization, with strong government interventionist sympathies, that played an important role in the election of Obama.
That Warren wrote the Consumer Financial Protection Agency provision is signal enough that there are all kinds of landmines that will damage the financial sector, and perhaps benefit insiders, as will occur if Summers ends up at head of the Fed.

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