In the Wake of the Foreclosure Crisis Financial Overhauling is Essential

In the wake of the foreclosure crisis it is financial overhauling that is essential and pivotal to the problem. In expressing his keenness to put limits on the size and operations of the jumbo banks, Obama has kicked off a logical beginning – something that had been lacking so far. Till now the thinking of White House had been focusing on the multiple task of bailing out the giants on the assumption that they were too big to fail. It had become like an undisputable fact of life that they had to be kept running to keep the nation alive and kicking. But subsequent events have shown that this theory of making “the world safe for giant banks” was erroneous and far from satisfactory. The main problems remained unsolved.

History was ignored and the trend was to maintain the status quo that denied real reforms. It was also not taken into account that such outsized financial bodies become problems long before they start to totter. The swollen tumour of these behemoths takes away the resources from better productive purposes. Thus they swell like cancerous growths at the cost of others. It is evident to all today how the body of the nation has been sucked dry in all its limbs – wages, retirement savings and property wealth. Meanwhile the taxpayers feed in the jumbos with huge bonuses.

The new stand taken by Obama seems to be hopeful – it will slice into the unhealthy growth. Banks having the coverage of federal insurance would be banned from taking risks in the capital markets. This would put a stop on banks from owning and then investing or speculating in hedge funds and private equity funds. Obama has also given out the call for placing new limits to the size of the banks. This will limit the damages that would be caused if any one bank failed. It would also generate productive competition that would revive the health of the economy.

By these steps the significant banks that would be affected are Goldman Sachs, JP Morgan Chase, Bank of America and Citibank as well as Morgan Stanley. During the crisis they were changed into bank holding companies to enable them to qualify for federal aid. But if now the bank regulators permit them conveniently to change their charters they would escape the new guidelines.

For the new rules to become law these would have to pass through Congress and thus it remains doubtful how far the banks would actually be reined in. But if put into force – these rules would separate the gambling casinos of Wall Street from the banking system; the systme on which the people and the nation depend.