• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • President Obama Threatens Veto on Financial Regs for Wrong Reasons

    So now President Obama is threatening to veto financial reform legislation Democratic leaders in Congress are working to pass if it is not tough enough on derivatives. There is really no disagreement between Obama and Congressional Democrats on the issue, just a bizarre attempt to make non-news.

    Obama is in high dudgeon because his advisors claim derivatives caused the 2008 financial crisis. The problem is this claim is false, and the proposals Obama offers would make future crises in the derivatives market more rather than less likely.

    There is actually a substantial degree of consensus about how to improve the derivatives market, and market participants themselves, with no help from Washington, have made huge strides in making those improvements in the 18 months since the 2008 financial crisis.

    Since they can’t claim credit for what the markets have already done, Obama and his allies in Congress are proposing to expand bureaucracy and give government the power to tell derivatives traders and users how to manage their businesses.

    Obama wants to play this as Wall Street versus Main Street. But whatever problems may exist on Wall Street, giving bureaucrats in Washington more power to meddle won’t fix them. We could just let bankers roast, except that derivatives are useful in holding down prices of everyday items like food, clothing, and fuel and in managing financial transactions such as credit cards, consumer loans and home mortgages. Obama is attacking Wall Street, but it is consumers who will be stuck with the bill.

    Posted in Economics [slideshow_deploy]

    8 Responses to President Obama Threatens Veto on Financial Regs for Wrong Reasons

    1. Assertive ConSERVati says:

      During the past eight years, the Democratic Party political group ACORN pressured banks to give mortgages to people who could not afford loans and filed lawsuits on behalf of ACORN in order to force banks to give loans to people who could not afford to pay them back, resulting in a by-product of government intervention and social engineering which caused a financial mistake called the "derivative," which turned sub-prime mortgage market, ran by Fannie Mae and Freedie Mac, which would increase the housing bust. A derivative is a contract where one party in exchange for payments to that company based on the value of the mortgage. Derivatives allowed commercial and investment banks, individual companies, and private investors to spread the risk with mortgages. Certain financial and insurance companies ivested heavily in derivatives, such as American International Group (AIG).

    2. Don, Massachusetts says:

      Sure, let the industry make its own rules. Isn't that a bit like letting the fox make the rules for securing the hen house? The industry only makes rules that benefit itself and not the country as a whole. The screws need to be tightened on these guys until they squeal.

    3. J.C. Hughes, Texas says:

      Spoken like a true leftist authoritarian Don. The only slithering critters threatening to further undermine the U.S. economy are the congressional democrats and Obama administration. In fact, the latter has proven to be not neutral but rather destructive to both domestic and foreign policies. If I had my way, their wispy narcissistic leader would be facing impeachment. The best thing federal government can do is to stand back and let the states and free markets function as intended by our nation’s founders. The more Obama and his congressional supporters intervene in domestic affairs, the worse things will become.

    4. southernsue says:

      don, if the liberal shakedown artists had let the industry alone, we would not be in the mess that we are in today. i agree with the poster assertive conservative. as a liberal, i assume that you do not understand what conservative ohio is saying or you refuse to believe what conservative ohio is saying.

    5. Pingback: Must Know Headlines 4.19.2010 — ExposeTheMedia.com

    6. ATB2, nyc says:


      No, what the post suggests is like letting the hens set up the rules for the henhouse. It is the proposed legislation that is more akin to letting the fox (Feds), with its coercive power into the henhouse (derivatives market) and extracting tribute from those it allows to continue breeding (trading). The end result of this bill will be fewer hens.

    7. Drew Page, IL says:

      It is pretty hard to argue that Wall Street brokers should be left unregulated and left to their own devices. They bear a fair share of responsibility in the financial meltdown.

      That said, I must agree with Assertive Conservative in Ohio. I wholeheartedly agree that the root cause of our financial mess was the Community Reinvestment Act initiated by Carter and enhanced by Clinton. The Clinton administration was responsible for instituting quotas that banks had to meet for granting mortgage loans to those who were poor credit risks. Sure, a lot of Americans dreamed of owning their own homes. But the government in not supposed to be in the "realization of dreams" business. The government dictated that Fannie and Freddie buy up these mortgages and paid Franklin Raines quite handsomely ($90 million in bonuses over six years) to do this.

      Some people in Wall Street brokerage firms saw a golden opportunity to bundle up these mortgages and sell them to Mutual funds and other financial institutions, disregarding the risks inherint in the mortgages that were granted to so many people who obviously couldn't afford to meet the payments. Where was the SEC during all of this? It is their job to see that these kinds of high risk investments are properly labeled and identified for the protection of the buyers, many of whom turned out to be mutual funds where lots of people had their 401k money invested.

      Then AIG decides it can make a buck by insuring these "mortgage backed securities". Where was the Department of Insurance of the State of New York, the domocile of AIG, making sure AIG had the necessary reserves to cover the potential losses?

      These are the areas where our government regulators fell on their faces and failed to protect the public interest and everyone but THEM gets blamed. Had there been proper government regulation of Fannie and Freddie, the quotas placed on banks by Mr. Clinton could have been openly challenged as bad business. Had bank regulators been properly overseeing the loan procedures of the banks and the reserve requirements needs to cover these loans, the meltdown could have been avoided. Had the SEC done its job properly, they would not have allowed Wall Street brokers to sell "mortgage backed securities" to an unsuspecting public. And had their been a reasonable review of AIG's sale of insurance of mortgage backed securities, and the reserves necessary available to cover potential losses by the Department of Insurance, we wouldn't have had to bailout AIG.

      No, I do not recommend a takeover of the banks, the insurance companies or of Wall Street brokers by the federal government. What I do recommend is that the regulatory agencies, whose job it is to protect the American public from abuses, do their damned jobs, whether or not the particular administration in power thinks it's a good idea or not. These regulatory agencies need to be independent of federal government control and free from the political ideologies of the party in power.

    8. Spiritof76, NH says:

      I don't know why the Republicans don't submit a bill abolishing the CRA, the root cause of the sub-prime blowout.

      Furthermore, we need investigations on the Congressional Democrat Barney Frank and Senator, Chris Dodd for aggressively promoting through Freddie and Fannie known risky loans with no requirements for paying back them and then impeding investigation of the two banks. We need to prosecute those two for causing the financial collapse. Instead, they are getting off scott-free.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.