Obama to announce Financial sector reforms yet again

Despite Larry Summer’s wish I don’t think this crisis will be remembered for the change Obama and his team is trying to make. It will mainly be remembered for how this crisis wiped out a sector (and its ivy league firms) which looked so promising otherwise, how it then became a huge economic crisis and how policymakers struggled to make proper policies. After a while off course all recessions end and so some policies will obviously take the credit.

Today, blogs  are discussing this new Washigton Post piece by Summers and Geithner (SG). The duo say:

This current financial crisis had many causes. It had its roots in the global imbalance in saving and consumption, in the widespread use of poorly understood financial instruments, in shortsightedness and excessive leverage at financial institutions. But it was also the product of basic failures in financial supervision and regulation.

Our framework for financial regulation is riddled with gaps, weaknesses and jurisdictional overlaps, and suffers from an outdated conception of financial risk. In recent years, the pace of innovation in the financial sector has outstripped the pace of regulatory modernization, leaving entire markets and market participants largely unregulated.

That is why, this week — at the president’s direction, and after months of consultation with Congress, regulators, business and consumer groups, academics and experts — the administration will put forward a plan to modernize financial regulation and supervision. The goal is to create a more stable regulatory regime that is flexible and effective; that is able to secure the benefits of financial innovation while guarding the system against its own excess.

On reading this, I was like again – Oh no not again? How many times do they want to come up with similar reform packages? We had Paulson’s Blueprint, followed by Geithner’s Financial Stability plan, then we keep having proposals linked to financial stability off and on and now this new plan. And it is not just about financial stability but things like executive compensations keep making a comeback. By keeping basic issues open-ended endlessly we are just getting nowhere.

Simon Johnson has already called the new Obama finance planas a plan which will help build the next crisis. He looks at the 5 proposals highlighted by S-G and says how each are just plain-talk. Unless , the proposed reform check the financial oligarchy, the system will only produce crisis more severe than this one.

Now let’s see what comes up on Wednesday.