Check Partisan Politics At The Door On Finance Reform

Jillian Bandes | April 22, 2010 9:19 AM

Among the leaked snippets of Obama's financial reform speech that he is set to give today, the most amusing is that Obama wants to counter “the furious efforts of industry lobbyists

” to prevent a second Great Depression. That's funny in light of recent news that Obama was a million dollars indebted to industry lobbyists, who have repeatedly said they're "partners" with regulators. In other words, the institutions stand to benefit from regulation more than the American people do.

This is just one piece of evidence that Obama's attempts to reform the system are tainted by special interests. Problem is, Republicans are tainted as well. But one thing everyone agrees on is that no matter what the state of affairs, something needs to be done. One of the most contentious issues is the liquidation fund (read: more bailouts) for troubled banks, which Democrats support and Republicans oppose. Another is the issue of raising institutions' capital requirements, so they don't go bankrupt while everyday investors don't know what hit them. Republicans want this; Democrats haven't been clear.

Those things still only begin to attack the problem of how you create real progress on financial reform. No, there should not be the possibility of another bank bailout. Yes, institutions should have healthy amounts of capital. But what about the millions in campaign contributions from finance houses to politicians that regulate them, or the revolving door between federal government departments and Wall Street? Let's not jump to enact more regulation, but let's at least

consider the fact that these issues play a significant role in the systemic sickness and opaque transactions that are so characteristic of the financial industry. Let's also consider the fact that both parties are in the tank for these big financial-political institutions. It's a very difficult problem to deal with.

Notably, Obama's speech today won't address derivatives. That's an industry worth trillions and trillions of dollars (the U.S. economy is somewhere around 12 trillion). Derivatives are hard to get at, because they're so far removed from everyday investor's line of sight, but that doesn't mean the everyday investor doesn't have a responsibility to check out the fine print. The American people need to wise up to unscrupulous institutions, but financial institutions that willingly pulling the wool over consumers' eyes also need to be checked.

Increased prudence on the part of the American consumer is key, but we also need an overall commitment from politicians to enact quality legislation that tackles this seemingly insurmountable problem. That includes a commitment by both Republicans and Democrats to address conflicting interests with Wall Street.