Let’s see now, Congress hasn’t even finished work on health care reform and now the House of Representatives is taking up another issue that has been a priority of President Obama. In my opinion, one of the main reasons Obama won the election against John McCain was the complete and total meltdown of the financial system in our country. If you look back at the way the campaign was going, McCain was neck and neck with Obama until September of 2008. When the credit crisis hit and the housing market went straight to China, McCain began falling back in the polls and Obama never looked back.

Rightly or not, the Republicans received the harshest criticism concerning the financial troubles that arose. Even though they certainly shared part of the blame, I think it is unfair to saddle them with the entire issue. Certain members of the Democratic Party had much to do with the failure of the financial regulation system to curb and/or stop some of the practices that brought down our financial system. Barney Frank comes to mind for his role in the House.

The real culprit in all of this is the greed that prevailed so greatly throughout the entire lead up to the crisis. Speculators used some very creative and complex financial products to make millions. For a summary of how credit default swaps and other products were used to manipulate the financial system, read this article. It is clear that some of these speculators played fast and loose with the rules and regulators either failed to see what was going on or didn’t try to stop them.

At the heart of the new regulatory rules being formed in the House is how credit default swaps and other financial products will be regulated and controlled. Doing so is a must, if a repeat disaster is to be prevented. A big part of the debate is being centered over the idea of creating a new agency to regulate the financial market. President Obama is very much in favor of such an agency, calling it the Consumer Financial Protection Agency (CFPA). The U.S. Chamber of Commerce is very much against the new agency and they are spending $2 million on an advertising campaign to convince Americans they are right.

If created, this new agency will be tasked with regulating mortgages, credit cards and other financial products. On the surface, this may look like a good thing and I am not convinced either way. I am not enough of a financial person to understand all of the proposals and what the CFPA will actually do. There is plenty of time for debate on the subject, as the proposals will take some time to work their way through Congress. Having said that, I have to wonder if what we need is better, not more regulation.

From the research I have done, I have learned that some states were the first ones to discover what was going on with some of the large banks that the American taxpayer had to bail out. They were stopped from reigning them in by federal regulators. Maybe they could have stopped or at least lessened the impact of the crisis, had they not been prevented from doing so. Again, I am not well enough versed in all things financial to be able to understand what needs to be done. I am sure states rights advocates will agree that the states need to have more power in these things, while others may be against that idea.

One thing we should be able to agree on is that the system crashed and burned last year. It was a long time coming, but it snowballed around September of 2008 and things went from bad to worse in a hurry. Lehman Brothers, AIG, Bank of America, Countrywide, Merrill Lynch, the list goes on and on of the financial companies who found themselves in big trouble. Some were bailed out by the taxpayer (that would be you and me) and some declared bankruptcy.

If you were looking for concrete answers to the financial regulation debate in this article, I am sorry to disappoint you. I simply don’t have them. I do know that something needs to be done about the system that failed us all last year. Multiple problems played a big role in the crash, some to a greater degree than others. I just hope that when the dust settles, the American citizen will be the better for it. Let the debate begin.

Tags: AIG, Bank of America, Barney Frank, Congress, Consumer Financial Protection Agency, Countrywide, Credit Default Swaps, Financial Regulation, House of Representatives, John McCain, Lehman Brothers, Merrill Lynch, President Obama, U.S. Chamber of Commerce

This entry was posted on Wednesday, October 14th, 2009 at 6:42 am and is filed under News/Politics. You can follow any responses to this entry through the RSS 2.0 feed.