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Financial reform seems to be fairly toothless Date published: 4/3/2009
Politics, as hopeful men practice it in the world, consists mainly of the delusion that a change in form is a change in substance. --H. L. Mencken
--Lyndon Johnson
WHEN Treasury Secretary Timothy Geithner first promised that fundamental financial reform was coming, Wall Street held its breath. With his testimony to Congress last week, you could almost hear the sigh of relief. Yes, there may be an agency with oversight of the entire financial system (most likely candidate is the Federal Reserve) to make sure there aren't major risks that might otherwise slip through the current, disjointed regulatory screens. Yes, Mr. Geithner proposed extending some form of oversight to previously unregulated derivatives, hedge funds, and private equity firms, the major players in the so-called "shadow banking system." And yes, there's going to be a push for more international cooperation to block some countries from trying to attract major financial firms by offering weaker regulation. There's also been a lot of tongue-in-cheek, public moaning and groaning by "masters of the universe" about Mr. Geithner's so-far half-hearted measures to shrink their sky-high compensation to mountain-high levels. Proposals to reduce pay packages should be more than window dressing to assuage an outraged public. Reforms are needed to reward financial managers based on longer-term profitability, rather than the "take the money and run" attitude that's fostered risky industry practices. But these and other recommendations he made (with more details due in several weeks) won't change the financial world drastically. What's more, they don't address some root causes of the present crisis: adjustable rate mortgages that precipitated the debacle when they reset, and securitization, the bundling of poor quality home, auto, credit card, and other debt into overrated bonds for sale around the world. There are a couple of reasons Mr. Geithner's recommendations are something less than game-changing.
1. Be respectful. No personal attacks.
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