In all the right ways

WE SAY The financial regulatory proposal strikes a good balance.

Last fall’s credit crisis catalyzed fear of business in everyday Americans. Their understandable ignorance has left many blaming corporate greed for the downturn. We were reluctant to see what measures President Obama would propose to prevent the crisis from happening again, and whether big business would be demonized.

But the proposal Obama outlined June 17 tightens up regulation without mistreating business.

More regulatory oversight will be given to the giant financial firms that were considered too big to fail and were privy to bailouts. It’s proper that these firms be treated differently in the future to prevent more bailouts. Although the depth to which the government will be allowed to scrutinize is questionable – down to investigating a company’s smallest foreign subsidiary – we should remember a single division within AIG bankrupted the entire company. Whether the intrusion justifies risk could be debated here though.

But whether you agree on more regulatory oversight, there certainly is need for tighter regulation. The Obama administration has proposed a number of good ideas.
For instance, even those giant financial firms that aren’t banks, but which lend like banks, will be required to keep a certain amount of capital reserves on hand. This is overdue.

Throughout the years, the line between banks and these financial firms has become murky. How they function should determine how and the degree to which they are regulated.

Still, this proposal draws criticism from every angle.

From those who want more regulation, The New Republic complains that the proposal isn’t strict enough. They say it sounds like a banker wrote this sentence in the proposal: “Given the important role of Tier 1 Financial Holding Companies in the financial system and the economy, setting their prudential standards (capital, etc.) too high could constrain long-term financial and economic development.” But what’s their complaint? The proposal follows textbook macroeconomics.

The proposal manages to tighten regulation without hampering investment.

From another angle, criticisms are coming from the trade associations (which is Washington talk for lobbyists) that are attacking the proposed consumer watchdog agency, which will seek to protect consumers from “deceptive mortgages, credit cards and other financial products,” according to CNN. But it’s needed for everyday Americans, who don’t have a master of business administration in finance, to not fall into the financial traps and fine print.

Despite the criticism, which any proposal will have, this one in particular does well to address the problems without overburdening business.