WSJ on the Prospects for Reform

The Wall Street Journal has an okay page-one look at the prospects for financial reform, concluding that they’ve “faltered” as the crisis has eased.

The piece doesn’t add much new but it’s by no means not worth doing. These kinds of overviews can be good when you can stand back and survey the field a bit, and as with the Times and its overdraft overview this morning, these are especially welcome from the agenda-setters.

The gist is that it’s pretty much the same as it always was on Wall Street and that’s probably not going to change much.

On the regulatory front, Democrats’ efforts to rework the rules for finance have bogged down amid infighting between federal regulators, fury among bankers and opposition from many lawmakers who believe that further expanding the government’s reach will only create new problems…

…Large compensation packages are back. And so is risky business…

Companies are selling exotic financial products similar to those that felled markets and the world economy last fall. And banks’ appetite for risk has grown: The nation’s top five banks collectively stood to lose more than $1 billion on an average day in the second quarter of 2009 should their trading bets go sour, a record level.

The Journal is too sanguine about Wall Street’s intentions here:

Some of Wall Street’s most notorious practices are unlikely to reappear. Banks say they’ve permanently abandoned housing risky assets in off-balance-sheet vehicles. Top banks have also stockpiled capital to raise their reserves to the highest levels in recent memory, providing a bigger cushion against market downturns.

You can bet they’ll go right back off-balance-sheet and lower their capital reserves as soon as it’s politically tenable.

But it’s right to doubt the chances for real change. This despite Rahm Emmanuel’s now-famed dictum “Never allow a crisis to go to waste.”

That sends Barry Ritholtz off on a fine rant this morning on Obama’s mishandling of the crisis. Here’s what Ritholtz says should have been done before focusing on health care, which was sure to be a black hole:

There was widespread popular support for a full reform of finance. What the White House should have pursued was: 1) Reinstatement of Glass Steagall; 2) Repeal the Commodity Futures Modernization Act; 3) Overturning SEC Bear Stearn exemption allowing 5 biggest firms to leverage up far beyond 12 to one; 4) Regulating the non bank sub-prime lenders; 5) Continuing high risk trades to be compensated regardless of profitibility; 6) Mandating (and enforcing) lending standards, etc.

I’d add a No. 7: A cap on the size of financial institutions (as in far below where JPMorgan Chase, Bank of America, and Citigroup are today)—but that’s just me. And maybe adjust No. 4 to “Regulating all non-bank financial institutions, including hedge funds, payday lenders, mortgage lenders, and mortgage brokers.” Throw in a consumer protection agency and you’re basically there.

A couple of these might happen, but not all. Not in the current environment, though the Journal does end with a it’s-not-quite-over-yet note:

The Obama administration is expected to intensify its push for the new regulation regime in the coming weeks.

The press has a critical role in making sure the administration keeps its eye on the ball here.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.