Editorial
Obama shows strong leadership on financial industry reform at last
One year after President Barack Obama assumed office and about 16 months after the Lehman Shock, the U.S. president has at long last presented a plan with the potential to affect a historic reform of the financial industry.
Obama's new and strengthened proposals for regulating the wild west of the financial world take two main directions. First is the protection of depositors and their savings from ventures by their banks into "trading unrelated to serving customers," throwing money at high-risk hedge funds or securities purely as a way to net enormous individual bonuses and bump up the bottom line.
The second major element of Obama's proposals is the creation of new tools to put brakes on the growth of financial institutions -- so that in any future cases of irresponsible management, no bank can again be labeled "too big to fail" and extract vast sums from the public purse.
The financial system reform bill the Obama administration put forward last spring was one of half-measures, maintaining the principle of financial market liberalization while failing to target the institutional gigantism and the increasingly complex and diverse financial instruments that lay at the heart of the financial collapse of 2008. That bill is now being deliberated by Congress, but we must praise Obama for having the courage to change course and present a new plan for meaningful reform.
Of course, there is probably a great deal of political calculus behind Obama's new path on financial reform. The recent loss of the late Edward Kennedy's Senate seat to the Republicans -- spelling the end of the Democrats' filibuster-proof majority and putting the future of Obama's health insurance reforms in doubt -- is a major influence. And, after the rough ride the president has been getting on health care, taking on Wall Street promises to restore popularity with the public.
U.S. stock markets dived when Obama presented his new policy Thursday, sending waves across the Pacific that sent shares on the Tokyo Stock Exchange lower as well, as Obama's reforms would mean serious changes to major financial institutions and end blockbuster earnings on the scale seen before Lehman's collapse. However, the essential purpose of the financial industry -- to support the economic activity of businesses and citizens -- should not be tangled up with raking in vast profits from unrelated ventures in the first place.
Obama appeared to be ready for a fierce counterattack from Wall Street, stating: "If these folks want a fight, it's a fight I'm ready to have." While Obama may face a difficult road ahead -- not just from the financial titans of Wall Street but also in maintaining support for his initiative in Congress -- we hope he continues to demonstrate strong leadership on this issue. Obama cannot simply make a show of battling the financial industry, and we ask earnestly that he implement effective measures to prevent another Lehman Shock, even if they must be repeatedly corrected and amended.
Coordination with other world powers will also probably become necessary. Furthermore, Obama's new policy is quite capable of influencing Japan's own banks as they grow beyond their roots in banking and into securities and insurance. We will watch developments on this issue with great interest.
(Mainichi Japan) January 23, 2010