Feds try to keep us from being sucked dry again

August 8th, 2009 at 10:15pm Annette LaCross

A pair of columns I wrote nearly a year apart seem to be coming to a head these days.

A month or so ago, I wrote that it took nearly 70 years for Wall Street to unwind most of the regulations established by Franklin Delano Roosevelt’s administration in the throes of the Great Depression. It took fewer than 10 before the same bankers managed to bring the economy crashing down around us again.

More than a year ago, I wrote that Wall Street was inviting a hell of its own making by imploring the federal government for help before its vaunted institutions fell apart completely.

Uncle Sam did help, at which point many of its vaunted institutions fell apart completely. The government did succeed in propping up a select few.

From a Wall Street standpoint, that’s when the real problems began. Uncle Sam, you see, seems to share at least one characteristic of vampiric legend: Vampires can’t come into your house unless you invite them. But watch out if you do … they won’t leave until you’ve bled to death.

In the general panic of last year’s fourth quarter, inviting the demon inside seemed to make sense, especially considering the other monster stalking their halls: bankruptcy.

These days, however, safely tucked in the third quarter of 2009, with the financial waters calming, Wall Street has decided to thank its one-time benefactor politely and send it out of town. Fast.

Unfortunately, it can’t have it both ways — which is why the real hell for Wall Street is just beginning.

The Obama administration’s ambitious financial reform plans are irrefutably necessary. We’ve seen all too clearly what happens when financiers run amok, which is a fair representation of their behavior over the past decade or so.

And it’s a fair conclusion that government regulators, at the very least, didn’t take their jobs very seriously.

Granted, they may have been lulled into this position with the help of former Fed chief Alan Greenspan, who believed regulation of financial firms unnecessary because the firms would always act in their own best interests — which even I would assume doesn’t include outright failure.

So there is clearly a need to reinforce some of the regulations.

The heart of the reforms focuses on consumer protection, with a new agency providing oversight of credit, debit and gift cards, mortgages, overdraft protection, payday loans and a host of other consumer-focused instruments.

Banks and other financial firms will have to answer to stiffer rules, including the standards by which their capital is measured; some of the larger hedge-fund companies would be regulated; and the ratings agencies, which have undergone some intense scrutiny, would face more disclosure requirements and stricter standards.

I’ll admit, I share some of Wall Street’s “concerns” — a polite term that in this case means “frenzied panic” — over the proposed regulations. Anyone who saw bankers and financial types being grilled by various congressional committees this year knows what I mean.

But even vampires have to follow the rules. And the rest of us are safer for it.

Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.

Entry Filed under: regulations, recovery, bailout, Obama