Financial Regulation

Obama's Financial Overhaul Is Certainly Uncertain

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Well, I suppose we'll have to study the issue.

Transparency, certainty, and an end to taxpayer-funded bailouts. As President Obama signed the Dodd-Frank financial regulation bill into law this morning, that's what he promised would result from the Democrats' massive overhaul of financial sector rules. That might be nice if it were true. But it's tough to argue that rules the administration barely understands will add transparency to the system, and even tougher to argue that the law grants certainty—for everyone "from bankers to farmers to consumers," as Obama claimed—when so many of its key decisions are left to regulators to figure out sometime later. If anything, the law's game of regulatory kick-the-can creates vastly more regulatory uncertainty; witness the shutdown of various bond markets as ratings agencies urge financial services companies not to use their products until they have a better idea of how to calculate the new liabilities the law gives them. As for Obama's precious farmers—no politician can resist their earthy charms—it's not clear how or whether they'll be affected by the new rules. But that's exactly the point: Right now, many individuals and industries are deeply uncertain about how the new rules will play out. That makes them worried, and those worries affect their behavior.

As for those nasty taxpayer-funded bailouts, Obama stood strong: "There will be no more taxpayer-funded bailouts. Period," he said, explaining that "there will be new rules to make sure that no firm is somehow protected because it is too big too fail." This is true except for the small fact that the law actually reinforces too-big-to-fail—and grants the big banks that are expected to fall into that category lower borrowing costs that end up being financed by taxpayers.

So despite promises of stability and financial protection, Obama and the bill's authors have given little more than a vague promise to study up on the problems—the law responds to nearly all the toughest issues by calling for new studies—and come up with a some to-be-determined way to fix things eventually. Maybe. Perhaps. At some undetermined point in the future. But still: Certainty! Transparency! It's all so clear now, isn't it?