Major Financial Reform Package Decided In Congress

Today, Congressional negotiators agreed upon a plan to reform the American financial regulation system—which, if it passes next week, would constitute the “most sweeping set of financial reforms since those that followed the Great Depression,” according to Treasury Secretary Tim Geithner. The proposal includes a ban on proprietary trading by banks and much more extensive oversight of the derivatives market, two major reforms coming on the heels of the efforts earlier this month to step up regulation of hedge funds and make it easier for investors to sue credit rating companies. If passed in its current state, the PAYGO bill is expected to be budget-neutral, covering its $19 billion in costs with a fee on banks and hedge funds. It is meant to curb excessive risk-taking and change the ‘too-big-to-fail’ mentality of large-scale American financial firms.

The American economy can’t risk another financial crisis—we don’t have the fiscal resources to get us out of another one. Under current trends, we won’t have the budget flexibility to respond like we have been. Let’s hope this package of reforms prevents the need for future financial rescues and bailouts. But as we’ve seen through the current crisis, budgetary flexibility is extremely important in being able to quickly respond to crises, giving us all the more reason to look at each area of the budget to ensure that, in the future, we continue to have it.