Marketplace Scratch Pad

Morning Reading

Scott Jagow Jun 17, 2009

We’re waiting for the President to deliver his plan on financial regulation, but an 85-page draft has already been given to the media. My favorite breakdown of it comes from Felix Salmon at Reuters:

In a nutshell: If you thought this was going to make the current horribly-complicated system of financial regulation less complicated, think again…

In order to get some measure of cohesion over all this, a second brand-new regulatory entity, the Financial Services Oversight Council, or FOSC, which will consist of the leadership of the NBS; the FDIC; the NCUA; the SEC and the CFTC (yes, they are remaining separate too); the FHFA (that, too, gets to remain independent for no obvious reason); the Treasury; the FOMC; and the brand-new Consumer Financial Protection Agency.

Or, to put it another way, FOSC = NBS + FDIC + NCUA + SEC + CFTC + FHFA + FOMC + CFPA + Treasury.

I know what you’re thinking — it can’t possibly be as simple as that. And you’d be right! There’s also a Financial Consumer Coordinating Council, which comprises the Consumer Financial Protection Agency, the Federal Trade Commission, and the SEC’s Investor Advisory Committee.

Oh, and I almost forgot, they’re also creating an Office of National Insurance.

In other words, if you thought the bureaucracy was bad until now, just wait until you see what’s coming down the pike.

Simon Johnson at the Baseline Scenario has a viewer’s guide to the President’s announcement. It’s a list of 10 questions Mr. Obama needs to answer. Among them:

Does President Obama buy the idea that what happened to our financial system was a “rare accident,” or does he think that something more systematic has gone wrong?

Does he think that the crisis itself will take care of many problems – for example by chastening the remaining bankers to behave well indefinitely or somehow making their organizations less stupid? Or does the crisis serve just as a wake-up call to all of us: Unless and until we fix the system, we will be vulnerable to further damaging crises?

Onto other topics…

At Slate, Daniel Gross warns us that the bust sectors of housing and finance will most certainly not be the sectors to pull us out of recession:

If you’re waiting on housing and finance to get us out of the mess they caused, then you better pull up a comfortable chair and a bag of popcorn, because it’s going to be a long wait. Just as regulators always fight the last battle–regulating accounting after the dot-com meltdown, promising to regulate derivatives now–analysts always look to the last boom to cause the next one. The new reality is that the sector that dragged the economy down is never the one to lead the recovery.

The Heritage Foundation’s Brian Riedl writes in the New York Post about why low-cost home loans are a thing of the past. The government’s new avalanche of debt has seen to that:

Under President Obama, the 2009 budget deficit is set to reach a staggering $1.8 trillion. It took President George W. Bush seven years to run up $1.8 trillion in debt.

And these deficits aren’t merely a temporary result of the recession; the president’s budget would run deficits averaging nearly $1 trillion a year for the next decade.

The national debt would double. In other words, Obama would run up as much government debt as every president in US history from George Washington to George W. Bush — combined. Put simply, he’d dump $84,352 per household of new debt into the laps of our children and grandchildren over the next decade.

Dane Stangler at The American has an interesting take on entrepreneurship. He says even though the population is getting disproportionately older (Baby Boomers), we may be on the cusp of an entrepreneurial boom:

Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurial activity (a measurement of new business creation) belongs to the 55-64 age group. The 20-34 age bracket meanwhile–which we usually identify with swashbuckling and risk-taking youth (think Facebook and Google)–has the lowest. Perhaps most surprising, this disparity occurred even during the decade surrounding the dot-com boom–when the young entrepreneurial upstart became a cultural icon.

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