How Tough Are Obama's New Financial Regulations Going to Be?

Joe Nocera, business columnist for The New York Times, argues that they aren't going to be tough enough:

Three quarters of a century ago, President Franklin Roosevelt earned the undying enmity of Wall Street when he used his enormous popularity to push through a series of radical regulatory reforms that completely changed the norms of the financial industry.

Wall Street hated the reforms, of course, but Roosevelt didn’t care. Wall Street and the financial industry had engaged in practices they shouldn’t have, and had helped lead the country into the Great Depression. Those practices had to be stopped. To the president, that’s all that mattered.

On Wednesday, President Obama unveiled what he described as “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”

In terms of the sheer number of proposals, outlined in an 88-page document the administration released on Tuesday, that is undoubtedly true. But in terms of the scope and breadth of the Obama plan — and more important, in terms of its overall effect on Wall Street’s modus operandi — it’s not even close to what Roosevelt accomplished during the Great Depression.

Rather, the Obama plan is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself. Without question, the latter would be more difficult, more contentious and probably more expensive. But it would also have more lasting value.

The fulcrum of Nocera's disappointment seems to be that Obama is essentially leaving "too big to fail in place" -- that mechanism that says a financial institution is so important to the global economy that if it ever is too risky and goes under, the government will rush in and save it. Eliminating "too big to fail" would require something like replacing the Glass Steagall firewall, which separated commercial from investment banking. It'd be a gigantic anti-trust effort. So far, Obama's only been talking about this kind of restructuring with the auto industry. He seems to be leaving the banks untouched, which is a bad sign if we don't want to revisit this kind of crisis again in the future.

Of course, Wall Street was quick to condemn any kind of reform whatsoever, even reform that doesn't go nearly far enough.