President Obama Failed to Redesign the Financial System


The “overhaul” of the financial regulatory system just proposed by President Obama avoids serious reform of the US banking system which rececently sent the world into the worst recession since the Depression. The opportunity to redesign and innovate a dangerous and out-of-control system is now lost. What FDR did in the 30’s following the bank collapse, Obama is failing to do—make hard decisions, anger people, create new institutions that force new behaviors, put the nation above special interests.

The US needs a fresh approach to banking that makes all financial instruments transparent, limits leverage and lets bankers and bankers who fail—fail. It needs to stop the policy of allowing private banks and bankers to benefit from rising profits and push loses onto taxpayers (privatizing profits, socializing loses). None of the reforms proposed by Obama does this. In fact, as the proposal winds its way through Congress, it is likely to get even more diluted and less effective.

What is needed is an end to the culture of speculation, a culture promoted by economists and policy-makers of both Democratic and Republican parties. But the culture of speculation goes much deeper than Washington policy or Wall Street. We, the people, changed the name of "gambling" to "gaming" somewhere in the 80s or 90s, legitimizing something our parents and grandparents disparaged. Poker became the favorite game of middle class kids. We embraced a culture of speculation that included debt, betting, leverage, poker, playing the odds. It is no accident that over the past 10-20 years, profits going to the financial sector doubled and tripled while profits going to innovative companies and manufacturing companies stagnated or fell.

We have to end the culture of speculation poisoning our society. But this overhaul of the financial system by the Obama Administration won't do it. The lobbying might of Wall Street and the ideological proclivities of the economic advisors inside the White House prevent it.

One can only wonder what will happen to health care reform. People who embraced social media to elect President Obama need to return to it to tell him that redesigning large social systems, such as the financial and health systems, requires innovative new ideas and the courage to face off and anger entrenched interests.

A.G. Lafley learned this at Procter & Gamble and did the hard stuff to transform his company. Can Obama, the great compromiser, be as tough?

Before it's here, it's on the Bloomberg Terminal.