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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 17, 2009 at 9:30 AM

The Obama regulatory overhaul: Can we bank on the devil in the details?

Top of the News: President Obama rolls out his “soft touch” plan to tighten regulation of the financial sector today. The key player, of course, will be the devil…the one in the details, not the shady hedge fund manager summering in the Hamptons.

It’s good to see the worthless Office of Thrift Supervision go away — it slumbered as Washington Mutual reached critical mass. Another good idea: Giving federal regulators the power to seize and break up institutions so big they pose a systemic risk — if they reach a certain level of trouble. My view: A financial institution too big to fail is too big to exist.

As for those details: It’s unclear how much regulation will be tightened for the so-called shadow banking system and derivatives. The president has been heavily lobbied by the big banks and financial players, and he is by nature a moderate compromiser. And regulation is only as good as its implementation. We had plenty of regulation over financial institutions over the past eight years — but the regulators were hopelessly compromised and forced to back off by the politically powerful.

Midweek Briefing: Oh, Yeah, Well Yo’ Mamma’s a Protectionist, Too, Dept.: Remember the controversy about the “Buy American” provision floated in Congress (and later dropped) during the stimulus debate? Now those worried about growing protectionism face a “Buy Chinese” edict in Beijing’s stimulus.

Beijing never signed the WTO protocol requiring an open playing field for government contracts. According to the Associated Press, “Even before the order, business groups worried that foreign companies might be excluded from construction and other projects financed by Beijing’s 4 trillion yuan ($586 billion) stimulus. Foreign makers of wind turbines complain they have been shut out of bidding on a $5 billion stimulus-financed power project.”

–April capital flows saw net purchases of long-term U.S. securities fall to $34.2 billion from $56.6 billion in March. It was still better than the performance in the early part of the year and late 2008.

–Euler Hermes, the big credit insurer, published research last week predicting a 35 percent increase in corporate bankruptcies this year worldwide. “In the current recessionary economic environment, we will witness a sharp worsening of the insolvency trend everywhere in the world, at least up to the end of 2009,” Karine Berger, Euler Hermes head of research, told Insurance Daily.

–Weyerhaueser has fallen off Goldman Sachs’ coveted “conviction buy” list. It’s now listed as a “buy.”

Today’s Econ Haiku:

Four firms win the feds’

Contract for next-gen nuke plants

They must be glowing

Comments | More in Banking


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