Power Play

Obama's new rules are fine, but the feds already have all the authority they need to fix Wall Street.

By Eliot Spitzer
Posted Thursday, June 18, 2009, at 10:48 AM ET

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In laying the intellectual foundation for the Obama administration's proposed overhaul of financial regulations, Timothy Geithner and Larry Summers rightly point out that "basic failures in financial supervision and regulation" contributed to our current predicament. That phrasing is exactly right—but they then jump in exactly the wrong direction. They presume that the failure of supervision and regulation was a result of inadequate power, rather than the lack of will to use existing power. Their conclusion, therefore, is to seek a grant of additional power rather than to question why those who had it didn't use it.

This distinction is important, because if we misunderstand the history of the crisis, we will learn the wrong lesson. Washington loves to pass new laws conferring additional power whenever there is a major mishap or crisis. Doing so implicitly confers immunity on those who were in power at the beginning of the crisis by sending the following message: The appropriate authorities did not have the power to forestall this problem. But now that we have granted new powers to these authorities, they will avert the next crisis. The problem with this grant of immunity is that we then fail to ask why no one used the power they had and whether rigid ideological thinking got us into the crisis in the first place.