Financial Reform's 'Public Option'

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by Thomas Cooley

How President Obama's consumer-protection plan threatens his plan to rein in Wall Street excess.

In the early proposals from the Senate Banking Committee, the creation of an independent Consumer Financial Protection Agency (CFPA) was a centerpiece of the proposed Restoring American Financial Stability Act.  The CFPA has drawn such fierce opposition that it is threatening to become like the public option was for health-care reform, a lightening rod for competing views about the proper role of government and a distraction to practical law-making. The media attention and financial-market reaction to the accusations that Goldman Sachs deceived investors about the nature of the synthetic collateralized debt obligations (CDOs) make one thing very clear: we need more transparency in financial markets. We have to get financial reform right so we mitigate the risk of future meltdowns of the system. The outrage over this case seemingly strengthens the hand of the Obama administration in getting the legislation it wants. In his speech to Wall Street on Thursday, President Obama stated, "It is essential that we learn the lessons of this crisis so we don't doom ourselves to repeat it. And make no mistake, that is exactly what will happen if we allow this moment to pass--an outcome that is unacceptable to me and to the American people." Fair enough. But it is surprising that they have courted failure by lumping regulatory reform together with consumer protection.

Read the full opinion editorial at Newsweek.com.

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About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

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