Financial Regulations

The first long chapter of Barack Obama's presidency came to an end last week when the Senate finally passed its sweeping financial regulation bill. Obama's first 18 months in office produced historic legislation, but that era of Big Things is now over. The mandate the president could claim after taking 29 states in the election and scoring an astonishing 69% approval rating in the Gallup Poll is mostly spent. His party's majority in Congress, already eroding, is about to get much smaller.

The Obama administration's proposal to overhaul financial regulations, aimed in part at restoring global confidence in America's economic system, triggered a welcome but largely wait-and-see response from overseas investors and analysts. From Beijing to Brussels, Obama's plan was greeted as a good first step. But many remained cautious about how effective the U.S. plan would be -- especially because crucial details have yet to be worked out. "It's important . . .

A year after the demise of legendary Wall Street investment bank Lehman Bros., calls for far-reaching reforms to rein in the financial industry's excesses remain unanswered -- and may be stymied by increasing signs of a budding economic recovery. President Obama is headed today to Founders Hall on Wall Street, steps from the heart of the business world, to try to reignite support for his proposed overhaul of financial regulations. The legislation would permanently expand Washington's role in overseeing the financial system by creating a new agency to protect consumers, reining in the dark world of derivatives and giving government officials the ability to seize and dismantle large companies whose failures could be catastrophic.

The dark and largely unregulated market of derivatives, which helped trigger the financial crisis, moved closer to federal oversight as a congressional committee voted to impose new rules on the products to try to limit the risk they can pose to the economy. The 43-26 vote by the House Financial Services Committee was a key step for the Obama administration's plan to overhaul Washington's oversight of the financial system while shedding more light on complex investments. Immediately after the vote Thursday, the committee took up the most contentious issue in the regulatory package: creation of the Consumer Financial Protection Agency.

With signs that the worst of the recession may have passed, President Obama is trying to keep the nation focused on a still-troubled economy and regain momentum in Congress for his plan to revamp healthcare, energy, education and financial regulation -- thorny issues that have long defied solution. "By no means are we out of the woods just yet," Obama said in what amounted to an economic State of the Union address Tuesday.

To help understand why the Obama administration is pushing for greater financial regulation, it may help to examine the case of Orange County's Ameriquest Mortgage Co., whose dizzying rise was followed by a monumental crash. The company and its affiliates had grown to become the nation's largest subprime mortgage lender when, in January 2006, Ameriquest coughed up $325 million to settle charges it misled borrowers and falsified loan documents.

When a meltdown on Wall Street threatened the financial system in 1998, Gary G. Gensler helped orchestrate the rescue of Long-Term Capital Management, a big hedge fund that had set off the debacle with bad bets on exotic financial contracts known as derivatives. But once the smoke cleared, Gensler, then a newcomer at the Treasury Department, closed ranks with others in the Clinton administration who decided against subjecting derivatives to tighter regulation.

The financial regulation plan that President Obama will roll out today will impose stricter and broader government oversight of the nation's banking system -- including tough new requirements on companies whose failure would threaten the economy, and creating new agencies to regulate banks and to protect consumers.

The Supreme Court wrapped up its term last week after landmark decisions protecting the right to have a gun and the right of corporations to spend freely on elections. But the year's most important moment may have come on the January evening when the justices gathered at the Capitol for President Obama's State of the Union address. They had no warning about what was coming. Obama and his advisors had weighed how to respond to the court's ruling the week before, which gave corporations the same free-spending rights as ordinary Americans.

Lawmakers completing a sweeping overhaul of financial regulations have given 8,700 former account holders at failed IndyMac Bank a surprise gift, retroactively increasing government-backed deposit insurance limits that would allow them to recover some of their lost money. The move came Tuesday as House and Senate negotiators agreed to permanently increase to $250,000 the Federal Deposit Insurance Corp. coverage for individual accounts and to make it retroactive to Jan. 1, 2008. Congress temporarily boosted the coverage from $100,000 per account during the financial crisis in October 2008 — three months after federal regulators seized the Pasadena savings and loan.