Next Up, Financial Reform Needs Lots of Work

And you thought health care reform was complicated

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Health care reform is finished--at least for now. That means, in the words of popular Barry Ritholtz, "we can get to what I consider to be the more important issue: Reforming Wall Street and the banking sector." The Senate Banking Committee starts wrangling over the specifics of new rules today.

But there are as many ideas about how to fix Wall Street as there are about health care reform. Thus far, the top finance commentators aren't nuts about what's on the table. Here, instead, is what they think needs to happen:

  • Let's Start at the Very Beginning  Barry Ritholtz lists nine areas for complete "do over," including the ratings agencies (whom he calls the "prime enablers of the crisis"), the SEC, compensation, and more. He also doesn't think the Fed should be given any more authority: "the Fed should focus on monetary policy."
  • Ratings Agencies Need Major Work, agrees a USA Today editorial. "If you ever wondered why these agencies slapped AAA ratings on bundles of toxic mortgages, helping to create an epic credit crisis, the answer is simple: because they were paid good money to do so." Thus, the editors argue, all the rest of the "well-intentioned" proposals will be useless unless we prevent banks from turning "ratings agencies into their own marketing firms"--they're supposed to be "independent watchdogs."
  • A Crucial, Overlooked Detail: Staff  Congress, writes Scott McCleskey for The New York Times, "is ignoring the obvious Achilles' heel in any new regulatory scheme: the inability of regulatory agencies to enforce and put in place the new rules, thanks in large part to their failure to recruit, train and retain effective staff." He suggests focusing on this issue, using the State Department's Foreign Service as a model for attracting and retaining talent (instead of " be[ing] a way station for future law firm partners").
  • Reform Has to Be International, insists Clive Crook at the Financial Times. Otherwise it will be useless. Here's one of his points in this thought-provoking piece:
This alliance of business and government is especially pernicious in finance. The problem is not just that specific rules – higher bank capital requirements, for instance – threaten profits and are therefore opposed. It is that all governments see themselves as partners of their industries in world competition. Regulators seek not a level playing field but one tilted to their own groups’ advantage. This is not a hidden bias. It is proudly advertised. A government that did less than stand up for its own companies would be seen as failing in its duty.
  • Realize You Can't Control Everything  "There's no way to ensure," argues Zachary Goldfarb forcefully in analysis for The Washington Post, "by virtue of the agency's structure, that a regulator will do a good job or be free of political interference."
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