Thursday, September 10, 2009

What's More Important: Finance or Health Care Reform?

Barry Ritholtz, author of Bailout Nation, argues that the Obama Administration is missing a once in a lifetime opportunity by putting financial reform on the back burner. The concern is that the window of opportunity to clean up Wall Street is closing as financial lobbyists dig in and public support wanes. For more on this, see the following post from Economist's View.

Barry Ritholtz says the administration should have pursued financial reform before health care reform:

Tactical Error: Health Care vs Finance Regulatory Reform, by Barry Ritholtz: I believe the brain trust behind the Obama White House has made a huge tactical error.

As Rahm Emmanuel likes to say, one should “never waste a crisis” — and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation. ... What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Such dithering can be fatal to an administration.

This was a colossal blunder. Passing reform legislation successfully would have fulfilled the campaign promise of “Change;” it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out” attitude in the mid-term elections, forcing the most radical de-regulators from office.

Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office. He should have been “Hooverized,” and O should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.

Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.

Never waste a crisis, indeed . . .

I also believe that the administration should have moved faster on financial reform, but if the cost is to delay and possible endanger health care reform (lobbying efforts would have been in full force there too), then it's less clear. Would it have been impossible to do both? And where does climate change legislation fit into all of this?

This post has been republished from Mark Thoma's blog, Economist's View.

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