Project Economy: Obama Calls For More Regulation Of Financial System

Judging by two days worth of meaty economic policy addresses, it seems as if the fault line between liberals and conservatives hasn't really evolved much over the past few decades. It's still a fairly mundane debate between Neoclassical/marginalist/Chicago school economists on one hand and Keynes/Galbraith on the other. (I don't think supply side tax cuts amounts to an economic school.)

Liberals believe that the debate in this country is so narrowly contained between these two poles that the politics always works against them. Certainly, the language is familiar.

Obama today targeted the regulatory policies of George W. Bush and Bill Clinton. He implied that the Clinton administration was complicit in deregulating the economy to such a degree that it laid the groundwork for the subprime mortgage crisis.

"Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices," he said. He blamed a "$300 million lobbying effort" for hoodwinking Washington.

Obama was referring to the repeal of the New Deal's Glass Stegal regs on banks by the Graham-Leach-Billey bill of 1999, which allowed financial institutions to merge without updating the regulatory framework.

Obama economics adviser Daniel Tarullo said that Obama opposes a resinstatement of Glass-Stegal but wants the regulatory apparatus to catch up. Obama said that banks ought to be required to increase their liquidity and capital requirements. He did not say by how much.

He laid out six principles he said will guide him as president.

One -- "First, if you can borrow from the government, you should be subject to government oversight and supervision."

Two -- better regulation of financial markets at home

Three -- better regulation of worldwide interconnections between markets

Four -- reducing duplicaton among regulatory bodies

Five -- crack down on illegal trading activity

Six -- more monitoring of systemic risks to the financial system.

Douglas Holtz-Eaken, John McCain;s chief policy adviser, said the speech was full of "wonderful words" -- "words you could hear out of a Democrat, words you could hear out of a Republican."

But he said Democrats mischaracterized McCain's response to the crisis as "do-nothing," when McCain, in fact, supported the interventions of the Federal Reserve.