Further Evidence That as Far As Financial Regulation is Concerned, The Obama Administration is a Republican One in Democratic Clothing

It’s Possible Even Republicans Would Have Been Stronger

One of the world's great mysteries, like how the universe started or why can’t the English cook decent food is the reluctance of the Obama Administration to actively regulate financial markets and their participants.  Regulation in the United States is a reactive process, it results from egregious acts that cause huge damage.  The role of the financial industry in the Great Recession fits this description perfectly.

But for reason beyond the explanation of anyone, the Obama Administration has treated Wall Street gently.  The idea of sending miscreants to jail for highly abusive and illegal practices seems totally foreign to Mr. Obama and the men and women he as appointed to administer federal rules.  And in that vein comes the report that no, regulation of mortgage backed securities, a major player in the recently experienced financial crisis, will be highly weakened.

Six regulators—including the Federal Reserve, Federal Deposit Insurance Corp. and Securities and Exchange Commission—on Wednesday issued new proposed rules that would require banks and other issuers of mortgage-backed securities to retain 5% of the credit risk of the bonds on their books, as mandated by the 2010 Dodd-Frank financial-overhaul law.

Well that sounds ok, what’s the problem?

However, the proposal carries an exemption so broad it wouldn't apply to securities containing most mortgages made under today's stricter lending standards, which are of relatively low risk. Rather, the rule would apply to the types of higher-risk loans that were popular before the 2008 financial crisis. The rule effectively sets boundaries for what kind of loans might be offered, and on what terms, once lending standards relax.

Had the rule been in effect last year, at least 98% of loans would have been covered by the exemption, according to Mark Zandi, chief economist at Moody's Analytics.

The decision by regulators represented a major concession to the real-estate industry and consumer groups that had worried the 5% requirement would hurt the housing recovery by limiting credit.

Oh, ok, we have this very weak regulation to begin with (the 5% should have been 50%) and now 98% of the loans are exempt.

Really, does anyone think George W. Bush would have been worse in this area?  And it's not as though Mr. Obama has received political support from Wall Street.  After bailing them out, and slapping them on the wrist, gently, for all of their discretions and crimes, the financiers turned against Mr. Obama in the 2012 election.  So what explains this policy?  Nothing except general incompetence, indifference and stupidity.