Editorials

Starving financial reform

President Obama's proposed 2012 budget, released a few days ago, strikes an admirable equilibrium by cutting spending while maintaining needed resources, especially in the vital area of financial market regulation. The proposed budget calls for necessary funding to oversee and enforce the Wall Street Reform and Consumer Protection Act, the new law approved last July.

Considering some in and around Congress argue for zippo additional resources, the president's proposal is significant. Some people making the "no new funding case" are the very same folks who opposed reforms in the first place. Supposedly, they could still argue for no new regulation, but a thoughtful policy case doesn't exist. Perhaps they think when the economy collapsed, all was well with regulation and Wall Street.

Under the new reform law, one agency (the Commodity Futures Trading Commission) would increase oversight and enforcement more than 40-fold - going from overseeing $5 trillion currently to hundreds of trillions of dollars in annualized over-the-counter trading. The OTC derivatives market is where those annoying things called credit default swaps (CDSs) were, and are still, traded. OTC trades (like CDSs) take place in the dark, completely out of regulators' view. These bets upon bets that bundled mortgages, municipal debts or numerous other things will actually fail hasn't been very good for taxpayers. We all recall how AIG collapsed, in large part, due to risky CDS bets - costing taxpayers $85 billion in a hideous bailout.

If reform opponents are actually concerned about spending, and not the reforms themselves as some of them have suggested, the president proposed a way to circumvent that concern. He suggests Congress allow regulators to charge user fees on trading transactions. The Securities and Exchange Commission already has such authority for fees, and uses it. I believe market oversight and enforcement is a public good and therefore deserving of funding through the annual budget. However, if the option is between inadequate regulation or user fees, government needs to pull the user fee trigger. We will soon learn what opponents of budget funding say. Will they allow user fees, or just relish watching financial regulations starve on the vine? Going back in time to lax regulation, big bank bailouts and an economic meltdown is not an option.

Too often, Washingtonians allow amnesia to set in, but the economic meltdown isn't hard to recollect. Most of us are still living with its ramifications. Other times, folks look for sneaky ways to get what they wanted all along. Those who opposed regulatory changes last year (and lost) have a choice; they can implement reforms now or not. That means to fund or not to fund - either through the budget or with user fees. That is the question.

Contact Chilton, a commissioner on the Commodity Futures Trade Commission, at 3 Lafayette Centre, 1155 21st St. N.W., Washington, DC 20581.

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