USA finances

The much waited for re-regulation plan of Obama administration has exposed the vulnerability of the financial system of USA to a rerun of the same crisis the country is now experiencing.

From his very first day in office Obama has given top priority to resolving the collapse of the financial system and push forward the economic relapse. It is now a year and a half that the country has been battered by the housing crisis followed by recession.

The biggest step the administration would be taking is enforcing financial re-regulation that would prevent a further repeat of what is now happening. Previous to the present crisis the country has witnessed one calamity after another – savings and loans mess up, dotcom crisis, Enron calamity and WorldCom – to name few. But the sub-prime mortgage triggered financial mayhem has been so far the worst since the nightmare of the 1930’s. There seems to be no second line of thinking that it is de-regulation that led to these series of woes.

The much hoped for package was announced by the Obama government on 17th June. But from the very beginning implicit in the statement made by the introductory speech of President Obama were signs of compromises that would be included. These comprises would negate the very purpose of the package.

Obama admitted that the economic fall was because of “an unraveling of major financial institutions and the lack of adequate regulatory structures to prevent abuse and excess.” But strangely enough Obama did not categorically put the blame on the pulling down of the regulatory system that had been running since 1933. He hummed and hawed over the point and said that the travails were due to “a regulatory regime basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope and sophistication of a 21st century global economy.” Thus what was given importance was not the pulling down of the structure but the frills of the framework.

Despite this grave concession the new plan does include many significant advances in regulation. The first thing was that it recognized that currently there were many institutions (banks and non-banks) that were too big to be allowed to fail because of the snowballing effect it would have on the system. The package denotes a new role for the Federal Bank in supervising and controlling these various units.

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