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A Pig with Lipstick – The Financial Services Oversight Council

With the push to establish the Financial Services Oversight Council, is President Barack Obama just recycling flawed regulatory measures by reshuffling the current regulatory deck and coining it with fresh “changed” names? From all indications, that is exactly what it appears; or to leverage one of the presidential campaign terms…”it’s a pig with lipstick.”

In March of 2008, President Obama made a campaign speech at the Cooper Union in which he vociferated a need for a “modern regulatory scheme.” In his speech to the black suit and red tie attendees in New York, he stated:

“Old institutions cannot adequately oversee new practices. Old rules may not fit the roads where our economy is leading.”

While most individuals would not disagree with his rather broad and all encompassing generic/comprehensive statement, his actions have in fact been in conflict with what he stated. For example, under his leadership, the Public-Private Investment Program (P-PIP) and Temporary Asset Relief Program (TARP) have been directed and managed under the same regulatory bodies. In addition, the same antiquated or obsolete regulatory apothegms he referenced in his Cooper Union speech have also been extended to non-banking organizations such as Chrysler, GM and AIG.

Whether you fall into the left, middle or right politically, each person must acknowledge Obama’s abnegation to regenerate our regulatory structure, did not come to fruition when he announced his Financial Regulatory Reform Plan. Instead of constructing a fresh regulatory approach and foundation, he simply reconfigured the same regulators, coined new titles and utilized the same rules of regulatory application he had previously disqualified as antiquated in his Cooper Union speech.

As part of the Financial Regulatory Reform Plan, Obama proposes the Treasury Department, Securities and Exchange Commission (SEC), Federal Reserve and Federal Deposit Insurance Commission (FDIC) plus four other agencies form what is labeled the Financial Services Oversight Council. The macro intent of The Council is to gather the identified regulatory agencies and have them work cooperatively to identify unsafe financial instruments and organizations systematically at risk. It is also tasked with providing direction to the Federal Reserve to help them identify Tier 1 Financial Holding Companies that don’t meet the Bank Holding Company Act requirements.

Good idea, right? However, again it is not a new idea; rather it is a re-branded 1988 presidential executive order (Executive Order 12631) from none other than President Ronald Reagan.

In Executive Order 12631, Reagan established a very similar regulatory group also composed of the Treasury Department, Securities and Exchange Commission (SEC), Federal Reserve and Federal Deposit Insurance Commission (FDIC). In 1988, the group was nicknamed the Brady Bunch, because it was lead by then Treasury Secretary [Nicholas] Brady. In its essence, according to a former Fed official; “Obama’s bunch have the same responsibilities, they’re just formalized in the Plan slightly, but nothing new in its essence.”

I can continue providing further historical footnotes and data highlighting the fact that in its truest essence, the new regulation is just repackaged regulatory dressing and also, while the regulatory demands will most likely grow, the end result will most likely not prevent what the regulation was meant to resolve or prevent. Really, we will most likely get more of the same stuff that did not work before.

If you ask me, more regulation just for the sake of more regulation makes no sense.

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  • 5 comments

    5 Comments so far

    1. Al Lorenz August 21st, 2009 9:15 am

      Tony,

      Great post and impressive historical references. The world still waits for the change that can be believed in.

    2. Tony Gallegos August 21st, 2009 3:22 pm

      Hey Al,

      Thank you and was not sure anyone would want to read even the surface details of this issue, but felt strongly it needs to be addressed. I have a book load of further examples and facts I could have brought out, but did not want to put everyone asleep with my first post. However, it is necessary to show all this “glitz” is all “smoke and mirrors.”

    3. Sean Purcell August 22nd, 2009 5:47 am

      Hey Tony,

      Starting right out with a softball I see. :) I too was unaware of the historical references. I guess everything new really is old. Although I would add (as usual) that my fear is greater this time around and that has to do with intent. I generally believe President Reagan’s goals did not include consolidation and expansion of central power, whereas I have no doubt President Obama believes that “government knows best” and the rest of us should just sit down and shut up.

      Thought provoking post. Nice job out of the gates Tony!

    4. Tony Gallegos August 22nd, 2009 8:11 am

      Hey Sean,

      I would tend to agree with your ascertain regarding “intent.” I did not do a proper job articulating that point and happy you brought it to fore. Just as you, I do believe regulation will get greater and more intrusive, however, the regulatory intrusiveness will be implemented using the same “old rules” and methods Obama referenced in his Cooper Union speech.

    5. Don Reedy August 22nd, 2009 6:08 pm

      Tony,

      Thanks for this. You end by saying “If you ask me, more regulation just for the sake of more regulation makes no sense.”

      Hard to disagree with that. But, Tony, what shall we do, my friend, to quell regulation? Where shall we turn? To whom can we preach, and what must they hear?

      If, as Sean suggests (and I’m putting words into his mouth), there is much to be feared here, then are we doomed to watch the empire fall, or are there regulations that can be affixed to the regulators to stop the madness?

      You have experience in this field. Can you describe or outline an uprising that we serfs could undertake?

      Oh, and really nice job tying in history, that singular topic so easily dismissed as off topic in these days of politicking by just making unbacked claims.