Fisher Investments Editorial Staff
Politics, US Economy

Separation Anxiety

By, 09/15/2009

Story Highlights:

  • Amid plans to unwind its historic financial investments, the government's also repeating its proposals for new financial regulation.
  • Obama repeated June's proposals to establish a financial services oversight council, create a new Consumer Financial Protection Agency, require more stringent capital and liquidity requirements for banks, among others.
  • Markets rose nicely Monday after President Obama issued his remarks—telling us markets may not expect much to result too soon from the new regulatory push.

________________________________________________________________________

It seems the government's suffering from separation anxiety. Amid announcement of plans to unwind its historic financial investments, the government's also repeating proposals for new financial regulation—seemingly designed to deepen and prolong government involvement in the financial sector. Granted, these proposals weren't all that new—largely a restating of proposals introduced last June. Yet since then, not much has happened. Not surprising, given the numerous proposals were vague and needed hard-to-come-by Congressional approval.

But on the anniversary of Lehman's failure, the White House is once again pushing for financial regulation, warning a financial recovery shouldn't mean complacency. Obama repeated June's proposals to establish a financial services oversight council, create a new Consumer Financial Protection Agency, require more stringent capital and liquidity requirements for banks, among others—a bit at odds with the "exit" message. Streamlining regulatory supervision and increasing transparency would be a positive, but government involvement in free markets often spurs negative, unintended consequences. (Already, it seems the government's credit card reform legislation isn't going as smoothly as hoped.) Too onerous regulation could prove an obstacle to full financial recovery.

But, ongoing uncertainty is no friend to capital markets either, and we don't have much more clarity on the White House's proposals than we did in June. Yet, markets rose nicely Monday after President Obama issued his remarks—telling us markets may not expect much to result too soon from the new regulatory push. Markets are right to be skeptical of much legislative success. To date, other major initiatives—health care and carbon emissions—have faced significant Congressional headwinds. The same could prove true for financial reform as 2010's midterm elections temper political activism. If anything does pass by year-end, it's likely to be a watered-down version of today's still fairly vague proposals.

Despite talks of an "exit strategy" (which remain vague), a true government exit from Financials is still far down the line. So far, the government's shown once it takes hold, it's likely to be entrenched for some time—whether it says it wants to or not.

Markets likely wouldn't cheer onerous new regulation, but a lot more political hot air would be fine.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.