New Yorkers have been fearful, with reason, that aggressive government intervention in the financial sector would lead to further catastrophes on Wall Street. Mayor Bloomberg and others warned Washington that it risked thousands more jobs if reforms were punitive and designed to win the support of demagogues who see New York City in general and Wall Street in particular as the home of unearned wealth and the capital of economic inequality.
As we have argued on this page many times, the financial sector may be flawed and surely has made mistakes, but it remains a global economic engine that has produced wealth and a better way of life for untold millions across the nation and indeed around the world. The mayor and others were right to remind Congress that it risked making things worse, not better, if lawmakers were more interested in political gamesmanship than in fixing the system’s flaws.
Wall Street could never be described as naïve, so it certainly came as no surprise when Capitol Hill presented Mr. Obama with a bill that expands federal oversight over financial companies, placed new regulations on derivatives and sought to protect consumers from less-than-transparent financial instruments. The nation’s confidence in Wall Street’s integrity has been badly damaged, so politicians had little choice but to respond to the failures that helped plunge the nation into its ongoing financial woes.
Investors and consumers need to believe that the mistakes of the past will not be repeated. That is the essence of the financial reform package passed last week. Risky practices will be monitored by a group of regulators, including the Treasury secretary. The Federal Reserve will serve as an advocate for consumers of financial products such as mortgages.
It seems fair to say that nobody knows for sure how these reforms will play out over the long term. Senator Chris Dodd of Connecticut rightly noted that all the regulation in the world cannot guarantee competency. But on the whole, Congress seems to have avoided knee-jerk regulation that would have damaged the city’s economy. Now it is up to the creative minds of Wall Street to work within the new rules and return the nation, and the world, to prosperity.