New Rules Aren't Enough

The Obama administration's financial reforms won't prevent future economic crises if regulators remain asleep on the job

by Dean Baker

The Obama administration [1]'s proposal for reforming financial regulation [2] has many useful features. In particular, the proposed consumer financial protection agency likely would have prevented many of the worst abuses in the subprime market over the last decade, as well as in other areas of consumer lending.

Other measures, like requiring that standardised derivatives be traded as clearing houses and that hedge funds register their interests with the Securities and Exchange Commission are positive steps towards modernising regulation, although they do not go far enough [3].

The US Treasury should be trying to standardise all derivatives and have them exchange traded to maximise transparency. There also should be increased public disclosure of hedge fund dealings. But, these are not the biggest flaw in the administration's regulatory proposals. The biggest flaw is that they help to support the view that the main problem was inadequate regulations, rather than failed regulators.