Understanding Government

In order to pay for financial regulatory reform, Congress transferred what funds remain from the Troubled Asset Relief Program a/k/a TARP (a/k/a the $700 billion bailout of Wall Street marked by its unpopularity — and success in stabilizing the financial market). Paul Merrion of Crain’s Chicago Business reports that this is unlikely to affect banks that have applied for TARP money, such as Chicago’s ShoreBank. (more…)

McClatchy’s Kevin Hall has a good investigative piece on credit rating agencies, an unsung culprit of the financial crisis. (more…)

The Washington Post’s Zachary Goldfarb has a balanced piece on whether the Obama administration’s Securities and Exchange Commission is doing anything to fight corporate crime after years in the wilderness. (more…)

The Washington Post’s Binyamin Appelbaum and David Cho report that while the nine huge banks that took part in the Treasury Department’s Troubled Asset Relief Program have repaid their loans, “hundreds of community banks” have not returned their TARP money. Some of these community banks are “struggling with losses on real estate development loans,” while others were dubiously selected as bailout recipients.

This news about community banks is a disquieting plot twist in the narrative that TARP is a surprise success. The quick return to profits by the biggest banks (Goldman Sachs, J.P. Morgan, etc.) coupled with the failure of community banks could lead to greater consolidation in the banking industry. If dozens of community banks go under, consumers must go to a big banks, that likely do both commercial and investment banking. So financial firms “too big to fail” will become even bigger. Perhaps the final legislative outcome of Chris Dodd’s financial regulatory reforms will address this problem.

In the week of a Republican taking Ted Kennedy’s old Senate seat — and subsequent speculation of how Scott Brown’s victory will change health care reform — Barack Obama has wanted to change the conversation to financial regulatory reform. Yesterday,the New York Times’ reported that Obama wants any regulatory reform bill to create a new federal agency that will protect financial consumers. Today the Times’ Jackie Calmes and Louis Uchitelle report that Obama supports a proposal by Paul Volcker, chairman of the Economic Recovery Board, that prohibits commercial banks from trading financial securities for their own accounts. Obama’s proposal comes after a year of basically ignoring Volcker and the former Federal Reserve chairman’s fondness for the repealed Glass-Stegall Act, That depression-era bill separated commercial banking from investment banking — an aim similar to Obama’s proposal.

An oft-stated criticism of the health care reform process and, to a lesser extent the stimulus bill, is that Obama didn’t play a more active role in crafting legislation. Financial regulatory reform might be a chance to see if a more active White House role leads to better, more coherent bills.