"New Bank Rules Sink Stocks" shouted the Wall Street Journal yesterday after President Obama announced his plan to rein in the size and riskiness of the financial sector. But here's an email I got this morning from a friend:
Nobody I've talked to on Wall Street seems to think the proposed reforms (although details remain vague) are anything more than PR, aimed in the wrong direction, don't do anything to make risk-taking more expensive, and are mere structural reforms that will be annoying to get around, but will be gotten around.
We'll see what comes out in the next few days. Maybe there's more to it than telling a bank you can't invest in PE funds. We can hope anyway.
But if the intent was to "go after the banks" and get the HuffPo crowd revved up, it seems to be working. Hey, maybe we can throw in Geithner or Bernanke's scalp and "hope" will re-spring eternal.
Or at least for the next couple weeks.
You know, if investors were really worried that these new rules were going to have teeth, the Dow would have dropped a couple thousand points, not a couple hundred. But the details of Obama's proposal are sketchy, Barney Frank has already made it clear that nothing will happen quickly, and Tim Geithner is busily assuring everyone that he'll make sure it's all done with a light touch. So nothing to worry about, folks.
Obama could have seriously taken on Wall Street last June if he'd wanted to. It's not as if he was too busy with healthcare, since he was mostly leaving that up to Congress anyway, and in any case it's a completely different set of people who work on these things. And it would have been popular. But now? It's pretty hard to suddenly pivot into populist mode and be taken seriously. So no one is taking him seriously.
And once again: the key thing would be to regulate leverage in every form throughout the entire financial system. That would allow us to have a thriving financial sector that's also a safe financial sector. Unfortunately, it's also the one thing that would seriously limit the ability of Wall Street banks to make astronomical amounts of money. So it remains largely off limits.
UPDATE: More here from Felix Salmon, who has a good roundup of whether Obama's proposals are likely to have a serious impact.