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News Link • Obama Administration

The State of Financial Reform

• NYT
 If you read the fine print you will discover that these reductions apply only to the remaining two months of 2009. Mr. Feinberg might be equally tightfisted when he sets pay for all of 2010 — he should be — but there is no guarantee. And as soon as any of these institutions pay the government back, they will be free of the constraints.
 
Mr. Feinberg’s job was always fated to be a sideshow.
 
These are all sound ideas. But they are only guidelines — not rules. For example, the Fed expresses concern that golden parachutes could also lead to risky behavior, but it does not ban them or say how they should be used. 
 

We still worry about leaving all of these critical details up to the banks — even with a promise from the Fed to be more vigilant. During the last several decades, banks have been given far too much room to write their own rules. The economic disaster around us is the result.

 

Too Little Regulation for Derivatives

The Obama administration and Congress have vowed to regulate derivatives, the complex and often highly speculative financial instruments that were at the heart of the meltdown. Two House committees have approved legislation, but — after heavy lobbying from the banking industry and corporate America— both versions are weak and unlikely to prevent another fiasco.

Right now, many derivative deals are executed as private one-on-one contracts, outside the view of the public or regulators. This lack of transparency — about participants, prices and volumes — proved disastrous. In the bailout of American International Group, tens of billions of taxpayer dollars went to pay the world’s biggest banks for derivative bets gone spectacularly wrong.

 
 

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