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Econwatch
June 17, 2009 1:30 PM

What Obama's Plan Can And Cannot Do

By
Guy Campanile
Topics
Regulation
(CBS)
In many ways the regulatory reform being proposed by the Obama Administration will reshape the American financial industry as we know it. It is historic and worthy of all the effort and time thousands of people will put into making them the law of the land.

But it's also important to understand what these new rules can and cannot do.

What these regulations may do is prevent a crisis just like the one we are living through right now.

Make no mistake -- this has been a hugely expensive crisis for family balance sheets digging out of debt and the U.S. Treasury shoveling money into the economy.

The International Monetary Fund warns that U.S. Government debt may rise to 75 percent of gross domestic product by 2011, nearly twice what it was in 2008. By September 1 out of 10 Americans will be out of work.

Preventing a systemic failure due to over leverage based on real estate and credit is absolutely needed. The idea of a consumer protection for financial products is also long overdue.

Anybody who has spent time reading the small print in credit card offers or an exotic mortgage agreement can see the minefields sown around consumers.

Likewise creating firewalls between the different sectors of our financial system to contain the spread of a toxic asset contagion is something everyone agrees is necessary. The global economy nearly choked to death on the alphabet soup of financial tools like CDO's, CDS's and SIV's.

Now the bad news:

The primary goal of these proposed regulatory changes is to prevent the next financial crisis. History tells us that may be unrealistic.

Preventing the next financial crisis is a noble and important function of the government just as preventing war or supporting the rule of law. Unfortunately it's doomed to fail because human beings are involved.

The reality is there will be a future financial crisis. The when and how is anybody's guess. History has proven time and again that identifying financial risks before they develop into full blown bubbles is a tricky if not impossible business.

If it were possible -- a financial crisis would not occur somewhere in the world at least once every 25 years. Whether it's tulip bulb speculation in 17th century Holland or real estate speculation in 20th century United States, people find ways of creating speculative environments that grow into bona fide economic bubbles.

When those bubbles pop you get a crisis. Also remember that these rules will only apply in the United States. The risk to the U.S. economy from outside forces is a clear and present danger as emerging markets find their way and grow in influence in the global financial system.

The process to codify the Obama Administration proposals will take months and involve Congress, Wall Street, banks, lobbyists and consumer advocates. The plans will be shaped and reshaped in ways that will make them nearly unrecognizable to their authors. It'll be a grueling process that will happen behind the scenes.

When Mr. Obama finally signs them into law sometime next fall our economy will get some protection from the market forces that pushed it to the brink in the Great Recession of 2008-2009.

What the economy will never have is immunity from the very thing that started this mess in the first place -- greed.

Read more on the regulations.

Text of Mr. Obama's remarks.

Guy Campanile is a CBS Evening News Business Producer.

Add a Comment See all 23 Comments
by mauricionla2009 June 22, 2009 12:43 PM EDT
Many companies are doing Loan Mods and not many have a 100% Money Back Guarantee but this one does. Call 1-888-666-3310. Take action now. Dont wait til its too late.
Reply to this comment
by sjc_1 June 19, 2009 3:35 PM EDT
Federal and state governments can only do just so much. We are more than 90% dependent on the private sector and when they screw up, we are all hosed. That is why we need a managed economy so that a few can not harm the many.
Reply to this comment
by TheMasses0003 June 18, 2009 1:37 PM EDT
This is this American's response to a question on the Republican's Health Care Option. Then they wonder why no one supports them anymore.
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Since you are unAmerican - your "point" is deemed moot idiot.
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by IThoughtItWasFunnyAgin June 17, 2009 9:24 PM EDT
Actually, what we need to do is shut down the democrapic schyster financing programs that got us into this in the first place...

And the other is get rid of the Federal Reserve and crooks like Geithner/Bernanke et al that helped skrew up the financial system and markets in the first place along with the democrapic push for anybody that breathes to own a house so they will love the democrats and vote for them.

Not every body in the country is responsible enough to own a home, or smart enough to deal with the financing, paying for, and taxing, and keeping up a home to support a good value.

You can't own a home, let it run to rack and ruin and keep your used appliances and broken toilets in the yard and expect to keep a home's value. These people don't NEED homes. They just need a place to rest where they pay somebody smarter than they are to own and take care of it and at least MAKE them keep it in decent shape. They're like children in adult bodies. And they THINK they deserve what everybody else has, but they won't get off their butts to work and make their payments, upkeep, and pay their taxes.
Reply to this comment
by -Lawyers-Guns-n-Money- June 18, 2009 5:28 PM EDT
Ba-blah-ba-blah-blah-blah and a mwah-mwah-mwah
by gene sapp June 17, 2009 8:47 PM EDT
There is little doubt that Obama is an idiot! While the country is on the verge of bankruptcy this idiot wants to spend another trillion or so for health care which will effectively kill decent medical care in this country. This man is a true idiot, either because he has no idea what his plans will do to the US or because he knows and is going ahead with them anyway. There is little doubt that this supreme idiot hates America!
Reply to this comment
by sjc_1 June 18, 2009 2:14 PM EDT
"There is little doubt"

There may be little doubt in what passes for a mind in people like you, but for most people we see some common sense plans an action that are long overdue. Republicans claim to be the true patriots when they are ruining the country with debt, war, greed and looting.
by gene sapp June 17, 2009 8:46 PM EDT
There is little doubt that Obama is an idiot! While the country is on the verge of bankruptcy this idiot wants to spend another trillion or so for health care which will effectively kill decent medical care in this country. This man is a true idiot, either because he has no idea what his plans will do to the US or because he knows and is going ahead with them anyway. There is little doubt that this supreme idiot hates America!
Reply to this comment
by whitemale08 June 17, 2009 8:21 PM EDT
This fool is doing everything he can to stop Glass-Steagall from being re-instated.

Obama is 'legitamizing' the 1.4 quadrillion in worthless derivatives and credit-default swaps.

He's basicly saying: "As long as we 'regulate' [legitimaze] derivatives with standards and capital requirements...[we can keep bailing them out]".

Folks, as a former supporter of President Obama, I'll be the first to admit that he's turned out to be an imposter and PUPPET for BIG FAILED BANKS.

Goldman Sucks gets to live another day to loot and ravage while everyday Americans continue to lose their jobs and their homes.
Reply to this comment
by ubrew12 June 17, 2009 8:25 PM EDT
Yes. I read that elsewhere also. Glass-Steagall worked wonderfully for 60 years. Its repeal is at least 80% responsible for the deriatives disaster. So, why aren't they reinstating it? Why are investment banks gambling with people's mortgages? Its like they are saying we didn't really learn anything from the Great Depression.

I believe, based on Obama's actions on this and many other fronts, that the Democrats and Republicans are cut from the same cloth. There's a pro-business party, and a GoGo-capitalist pro-business party. And the public is being scr*wed by both of them.
by Choosewell June 17, 2009 8:09 PM EDT
"What the economy will never have is immunity from the very thing that started this mess in the first place -- greed." The Guy is right - the government can't totally fight against the greedy by itself. The public - producers and consumers alike - must be a little more aware and look out after our own interest; we have to get off our butts and lock arms with the government that's trying to protect us from the proponents of unchecked greed. Because that bell tolls for you.
Reply to this comment
by ubrew12 June 17, 2009 7:56 PM EDT
What I don't like about articles like this is the 'null hypothesis' is being subtly promoted: that government should do nothing.

The GOP advocacy for the last 30 years has been that government can only make things worse. From Reagan, to Norquist, to Bush Jr, this advocacy is the primary reason we are in the stew we are in. We deregulated, and for awhile things seemed OK, although the middle class was hardly winning (unless you call going into massive debt winning). Then, the curtain fell, the plank was withdrawn, and we were all revealed to be walking on thin air over a Grand Canyon of debt. And YES that was BY DESIGN. By the very Wall Street Banksters who just held the American taxpayer up for several trillion dollars. This deep recession/depression was INTENTIONAL.

Here we are in the middle of it, trying to right ourselves, and this article says, 'don't even try. It'll never work. We're doomed, DOOMED I tell ya, to be robbed by greedy bankers or corporations every 25 years.' Well, its certainly TRUE if thats your attitude.
Reply to this comment
by globalcoolin June 17, 2009 6:52 PM EDT
What Obama's plan can do is pick off more American businesses like flies! The Man with The Yellow Hat is not watching! the congress seems to think Curiouse is cute!
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