Obama’s Bank Reforms Won’t Reform Anything

Carl Andrews | January 26, 2010 

Except in the case of making things, the economy in particular, even worse.

 

Of course, just about everything has gotten worse since Obama became President.
And he’s not done yet.

 

And there will come a time when even the most ardent of his supporters will grow tired of his constant excuse that this is what he inherited from George Bush.

Barack Obama calling himself a financial reformer is kind of like a drug dealer calling himself an unlicensed pharmacist.

 

 

bonnie and clyde obama

 

After the Democrats’ disaster in Massachusetts last Tuesday, President Obama appears to be flailing. Gone is the cool and measured demeanor that made him look presidential when the financial crisis struck during the 2008 campaign. Instead, the financial reform proposals he advanced later in the week seem to reflect political panic—a desperate attempt to appeal to the populist sentiment against Wall Street. Unfortunately, they also reflect a limited understanding of good financial or banking policy.

First, Mr. Obama has proposed to limit the size of banks or their holding companies, or both. The trouble with limiting the size of these institutions is that no one has the faintest idea what the right size is. What’s more, if the purpose of the size limit is to prevent a bank or bank holding company from being or becoming too big to fail, we have to know what size would cause a failed institution to cause a financial train wreck. No one knows that, either. Under these circumstances, it’s hard to take such a proposal seriously.

Second, Mr. Obama says that some firms should be prohibited from engaging in “proprietary trading.” The White House announcement seems to apply to both banks and bank holding companies, but there is a huge difference between them. A bank is chartered by the government, its deposits are insured, it can participate in the U.S. payment system, and it has access to the Fed’s discount window. None of these things is true of a bank holding company—which is an ordinary corporation that controls a bank.

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