When it comes to regulation of exotic financial instruments, the horse is not just out of the barn, it’s over the hill and across town.
So it’s with some concern that we viewed an announcement Friday from the President’s Working Group on Financial Markets saying it would strengthen government oversight of derivatives trading and increase transparency.
There’s no question that this sector of the financial world, which is partly to blame for the Wall Street crisis, needs more scrutiny.
But we are not sure that the same people who presided over the current financial collapse and are haphazardly trying to dig out from it should be in charge of creating a new regulatory structure.
Perhaps this is a job best left to the next Congress and administration.
In its announcement Friday, Treasury said a task force including the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission would close loopholes in their oversight of such complex products as credit default swaps.
However, given the positions this administration has articulated on financial regulation, the announcement is less than inspiring.
After all, it was only Thursday when President Bush strongly criticized proposals to regulate financial markets.
“History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market,” Bush said in a New York speech.
The president’s remarks clearly were an effort to shape debate on an issue gaining traction as his administration heads into its last days.
It’s also a time when the administration is facing criticism for what appears to be an unfocused manner in which government is dealing with the crisis.
Last week, Treasury Secretary Henry Paulson made the rounds of radio and television news shows to explain the administration’s bailout plan.
Treasury’s bailout strategies have encompassed three approaches since Congress approved $700 billion for the Troubled Asset Relief Plan.
First, Treasury was going to buy troubled assets and hold them until they regained value. Then, the priority turned to buying shares of foundering firms.
Last week, Paulson announced the unspent balance of the relief plan would be used to ease pressure on embattled consumers who are finding difficulty in using credit cards and getting student and car loans.
Further muddying the waters, FDIC chairwoman Sheila Bair on Friday proposed using some of the bailout money to keep homeowners from defaulting — a proposal that Paulson does not favor.
It’s difficult enough for an ordinary person to understand credit default swaps, the financial crisis and broader economic problems.
But the Bush administration’s herky-jerky efforts lead one to believe that they don’t even have a firm handle on the problems or how to fix them.
There’s no reason to believe that the administration’s efforts to regulate complex financial instruments would go any better.
