Treasury Secretary Tim Geithner unleashed an "expletive-laced" barrage on regulators over financial reform frustrations, and it's making some people worried that Obama's regulation plans are already falling apart. Tim Fernholz has some great analysis. To highlight his best point: Geithner is fighting a war on two fronts. The first front is against Wall Street, which doesn't want to cede any power to the administration now that they're cutting the strings and re-learning to put up huge profits. The second front, just a few hundred miles down I-95, is against Washington regulators who don't want to cede any power to the administration because ... well, because they're Washington agencies and that's how they do.
What does this mean to the future of the US financial regulation plans? It's difficult to say, but combined with this report that parts of the financial regulation plan have stalled in committee, I think we're seeing what many analysts feared months ago: That by scheduling financial reform after health care and cap-and-trade was akin to nailing its coffin.
The farther we get from the nadir of this financial crisis, the weaker the pull the administration will have over Wall Street and the less extraordinary will we're going to see from Washington agencies to cooperate with the administration to shuffle regulation duties and concentrate power in the Federal Reserve. However: When I quickly summed up this blog post to my colleague Daniel Indiviglio, he expressed uncertainty that the agencies could ever be accommodating enough for Geithner and the administration to bend and twist into spanking new regulatory bodies.
Can we count this as a crisis wasted? It's impossible to issue a verdict, but I think we're going to see increased pressure on Obama to take a personal stake in financial reform. As Fernholz notes, the questions being raised by regulators are mostly about turf, not policy, and no matter how many four-letter words Geithner wields, they won't replace the influence of the president making personal appeals to regulators about their changing role.
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