Loan Modification

Roubini: Obama banking reforms get it 75% right

By Morgan

Nouriel Roubini thinks that the new Obama banking reform plan gets it 75% right.  This in a video interview on Yahoo! Finance.  His one caveat is that the previous Fed under Greenspan had all the power, but didn’t care about managing risk, they wanted innovation at any cost.  That mindset led us to the big bust - so that in addition to the reforms, there must be people who believe that their job is to minimize and manage risk, no push the market towards untested innovation and accumulation of risk.

An overview of the reforms by the WSJ:

Roubini’s interview:

I imagine our regular commenter Capitan Ned has something to say about this. That the push towards unifying regulatory control under one or two federal bodies reduces regulation to the lowest common denominator, easily influenced by the lobbying of the biggest players in Washington, while the people are left hung out to dry. Better, let the states enact and enforce lending at their level, where more oversight and a better understanding of local markets and trends can be applied towards common sense regulation. Further, haven’t we seen concentrated power at the federal level already? And didn’t that precipitate the bust? Letting big, federally chartered banks run rampant with state governments unable to reign in predatory practices? See Wachovia. At least, that’s what I think he’d say.

I’d make a slightly different argument. That we have all the laws we need currently. Maybe a few need to be tightened up, and I’m fine with that. However, instead of simply passing new legislation dollars must be invested in oversight and regulatory scrutiny and prosecution. Laws without enforcement are worthless, and that’s the system we’ve been dealing with over the last decade. In fact, regulatory bodies have been so thinly staffed on the enforcement side that they were unable to keep up with the boom and growth in the market. (For example, California’s department of real estate only had 37 enforcement officers for 500,000 licensed individuals.) This cannot happen again if we’re to expect the new legislation to make one iota of a difference.

Full post as published by Blown Mortgage on June 20, 2009 (boomark / email).