David Champion of the Harvard Business Review is unimpressed with the Obama administration’s proposal on banking reform. In fact, he’s downright dismissive:
“The Obama reform… seems to be neither radical nor particularly useful, except perhaps as political theater,” Champion writes.
Of course, that’s far from the consensus view, at least when surveying the movers and shakers. Britain’s central banker Mervyn King seems to be in favor of Obama’s plan. Ditto for OECD’s secretary general.
Meanwhile, a pair of finance professors from NYU weigh in and offer support, with some caveats: “On balance, President Obama’s plans – a fee against systemic risk and scope restrictions – seem to be a step in the right direction from the standpoint of addressing systemic risk, if their implementation is taken to logical conclusions.”
But this is all beside the point for the moment. What will the reform really look like once it runs through the political sausage grinder? Meantime, one might wonder if the core of the alleged solution–separating conventional banking from the trading-oriented aspects of financial institutions–is a touch misguided. It certainly plays well as headline material. But wasn’t the real problem one of poorly designed loans? In that case, what do proprietary trading desks at investment banks have to do with any of this? Is it really the case that if we separate prop desks from banks the odds of another real estate buying frenzy will be diminished? Or might there be other factors to consider? Such as extraordinarily low interest rates?