One year later, no safety net

Exactly a year ago, investment bank Lehman Brothers imploded, kicking off Wall Street's most severe downturn since the Great Depression. With the real estate market still in tatters and an unemployment rate hovering perilously close to 10%, President Obama has called for oversight that would prevent this kind of blow-up from ever happening again.

Unfortunately, creating plans and legislation to regulate the wealthy, powerful finance industry is easier said than done, and even those who agree that such steps are needed disagree on exactly what the finished product will look like.

A big part of the problem is that companies like banks, insurance companies and other finance-related businesses aren't overseen by a single agency, which means mistakes and misdeeds can slip through the cracks.

In some cases, banks can even choose which agency they want to oversee them, which means they can pick the one that has the most lenient rules. Would you let your kid pick a babysitter that lets them eat chips in bed and bounce on the sofa until midnight? Of course not, but that's essentially what banks can do.

Another part of the problem is that some companies -- like AIG -- are so big and complicated that multiple agencies regulate them, but nobody gets the whole picture. Think of the fable of the blind men and the elephant. All of them can describe the body part they're touching very well, but none has any idea what the entire animal looks like.

These articles (from CNN/Money and the New York Times) try to explain why, a year after the blowup and the bailouts, we still don't have financial safety nets in place.

Let's start by noting Congress' one big success, the credit-card reform bill. Signed into law this spring, the new legislation prohibits card companies from using sneaky tactics like raising your interest rate without warning and slapping on huge fees for overdrafts and the like. Even this accomplishment, however, has its flaws. Namely, it doesn't go into effect until next year, which gives card companies months to figure out how to get around the new rules. (They've already started doing this by raising rates and fees now.) It's also not as tough as some industry watchdog groups wanted. This, in a nutshell, is the challenge the administration will face with financial reforms going forward.

The next item on President Obama's agenda is a consumer finance agency that would regulate and protect consumers from fraud and abuse when it comes to credit cards, mortgages, car loans and other kinds of debt. The banks absolutely hate this idea and are throwing oodles of money at their lobbyists and Congress in the hopes of sandbagging it or watering it down so much that it doesn't do any good. Members of Congress who object to the plan say that it will cause unnecessary hassle and expense for companies.

Another big part of the regulatory reform agenda is fixing that no-one-at-the-top dilemma. The Administration favors giving more power to the Federal Reserve, letting it act as "top cop," so to speak. Earlier versions of this plan would have folded or consolidated some of the other regulatory agencies, but political backlash has ensured that this probably won't happen. Some people say giving that much power to a single agency is dangerous. They point out that the Fed had a lot of regulatory powers to begin with, and it still didn't crack down on banks' sketchy business practices before the crash.

Also on the wish list: Obama also wants regulatory agencies to do a better job monitoring the buying and selling of enormously complex items like credit default swaps, financial instruments so confusing that even the banks that bought them sometimes didn't know how they worked - or how risky they could be. The issue of outsized pay packages and bonuses for bank executives is also a hot topic.

As both of these articles point out, though, the president is facing a race against time. Since the financial system and our nation's economy is no longer in crisis, it's tempting to put financial reform on the back burner and more or less forget about it. But this would be a disservice to all of us as taxpayers, who wind up bearing the brunt every time an undisciplined finance industry gets in over its head and needs to rely on Uncle Sam to keep it afloat.
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