The Washington Post offers a behind-the-scenes narrative on how regulatory reform was birthed at the White House.
Time and again, lawmakers, regulators and industry lobbyists pressed their concerns behind closed doors at the White House and the Treasury Department, according to participants.
Turf-conscious regulators opposed the idea to consolidate banking oversight agencies and took their appeal over the Treasury directly to the White House. Ultimately the administration spared all but one agency.
A few key lawmakers argued against merging the two federal agencies that oversee the stock and commodity markets. That did not happen.
Insurance companies fought over whether a national regulator should oversee them. The White House dropped the proposal.
But on those elements that mattered most to the administration, particularly expanding the powers of the Federal Reserve, Obama’s senior advisers were unyielding.
The Federal Reserve, which sat idly by as Wall Street piled on enough leverage to blow up the global economy, is now the No. 1 policeman for too-big-to-fail institutions. And who was president of the NY Fed during this time: Treasury Secretary Timothy Geithner.
The Post makes clear just how strongly Geithner feels about the importantce of his former home:
On May 8, lobbyists representing many of the nation’s banks and hedge funds huddled with senior White House advisers in the Roosevelt Room, seeking to snuff out an administration plan to increase the Fed’s authority to regulate them, when Treasury Secretary Timothy F. Geithner stuck his head in the door.
Fresh from meeting with Obama, Geithner asked the lobbyists what they were up to. When they explained they preferred that a council of regulators, rather than the central bank, safeguard the financial markets, Geithner silenced the discussion with a string of obscenities, according to people who were present.
“I don’t believe in rule by committee,” he said.
The funny thing is, the markets did in essence end up with a council of regulators with a souped-up Federal Reserve. The funny thing is, banking analyst Richard Bove told Bloomberg News that no one needed any new powers: If the regulators had simply been doing their jobs for the past decades it’s unlikely we would be in the mess we’re in now.
Still, the results show just how little political will there is to de-Balkanize the regulatory system. It’s a big disappointment.
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