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Obama's Financial Reform, More Like A Scapel Than A Pickaxe

The outlines of Obama's financial reform program are becoming clearer.  It's going to be more like a surgeon's scapel, rather than a pickaxe.

First, there will be a registration and regulation of financial instruments, such as derivatives. That is a long overdue reform, together with a provision that originators retain some "skin in the game" (to the tune of 5%). Some financial instruments are inherently dangerous, and need to be overseen. Also, institutions need to suffer some of the consequences of their own creations.

Second, there will be consumer protections against bad lending and other financial products, probably the handiwork of Elizabeth Warren. Lenders will lose the right to arbitrarily and unilaterally change the terms of agreements, but can do so only under Federal guidelines. That would largely rectify the imbalance of power between consumers and institutions.

Another set of reforms would essentially allow the government to limit the size of  institutions, breaking up troubled ones, so that all the pieces won't fail at once. This is an intriguing idea, and one that belies the need for more authority to the Fed. The whole raison d'etre for keeping insititutions "small" is to keep government small.

All in all, more like incremental reform in finance. Apparently the President is saving his real firepower for health care reform.