Financial reform is complicated. Understanding why we need it is not.
When President Obama makes his pitch for banking regulation Thursday in New York, he'll have more than enough ammunition. Everybody felt the credit crunch's tsunami, and everybody knows that the wave began on Wall Street. But whereas the motivation for reform is simple to understand, reform itself is infinitely complicated. Indeed Washington is seeking to regulate an industry whose very opaqueness was the cause of the recession. If Wall Street doesn't understand Wall Street, how will Americans understand Wall Street reform?
The key is to keep things simple. In his weekly address last weekend, Obama broke down the case for financial reform into four pieces: (1) creating new consumer protections; (2) shining a harsh on shadow banking; (3) installing measures to end "too big to fail" and (4) giving more power to shareholders. If that address was a template for his Thursday address, here are four themes we can expect for this landmark address.
1. We have to fight for consumers.
The clearest case for reform is the consumers' case, because we are an audience of consumers. Our sense of appropriate leverage ratios might be murky, but our sense of indignation is bottomless. Obama will say that Americans were repeatedly duped into the same devious schemes that eventually wiped out our savings. Even before 8 million workers were victims of the recession, millions more were victims of predatory lending practices, baffling financial products, devious interest rate policies lurking in fine print, and worse. This is the easy case to make. Today we have too many agencies with consumer protection as their fourth priority. What we need is one strong defender whose sole purpose is to make sane disclosure rules so that Americans understand what we're paying for.