Wednesday, June 17, 2009

Obama Unveils Financial Reform Plans

Earlier today, President Obama announced his administration's new plan for reforming the nation's financial sector. Considering the wild ride the financial institutions have taken the American people on for the past two years, this comes as no surprise.

This package of reform measures will expand the power of the Federal Reserve to oversee banks, create a new federal agency to monitor financial practices that might harm citizens, require banks to keep more of their assets as security for loans, and various other measures. President Obama has said it is the more far-reaching and comprehensive shakeup of the laws governing the nation's financial sector since the 1930s.

It's hard to say what Jefferson would have made of this. Deeply distrustful of centralized power, he instinctively recoiled from any increase in the power of the federal government. If we didn't know better, we might assume that Jefferson would have immediately opposed President Obama's proposal.

But in truth, there was one thing Jefferson hated more than central government: banks. As Jefferson put it in a letter to John Taylor, "I sincerely believe, with you, that banking establishments are more dangerous than standing armies." He fought tooth and nail against Alexander Hamilton and his associates, who sought to create a powerful financial sector in the United States. Jefferson thought that this was a threat to the hard-won liberty of the American people, and that the Hamiltonians were merely trying to accumulate wealth for themselves at the expense of the common good.

Had Jefferson seen the events of the past few years, with all the Wall Street shenanigans that have brought the world economy so much pain, he would have been dismayed but not surprised. He would have recognized that the Hamiltonian impulse is stronger than ever in the 21st Century, and that the Wall-Street fat cats were willing to treat the money of hard-working Americans as mere tiny chips in the world's biggest poker game.

One item in President Obama's plan is something that Jefferson would certainly have supported: a requirement that executive compensation packages by approved by direct vote by a company's shareholders. The current practice essentially allows the company executives to determine their own salaries, and we can see how well that turned out.

21st Century Jeffersonians should examine this admittedly complicated issue very carefully. Jefferson opposed centralized power in the federal government, but he also opposed overriding power held by financial institutions. Considering the vast changes in the world between 1826 and 2009, one can suspect that Jefferson would favor laws designed to reign in these financial institutions. After all, he said he favored laws against anyone who "picks my pocket" or "break my leg." No one can argue that Wall Street has been picking America's pocket these last several years.

Jefferson would ask us to maintain a constant vigil, ensuring that the laws are rational, achieve the aims for which they are written, and incorporate no more power to the federal government than is absolutely necessary.


lwbiii said...

Jefferson has rolled over in his grave. More government involvement (even ownership)in the private sector AND more power to the FED. Obama is clearly the "Hamilton" of our age. Unfortunately, we have no "Jefferson" to oppose him.

J said...

Hamilton wanted the financiers of his time to be the de facto rulers of the republic, whereas Obama is trying to curtail the financiers' power. I don't think, therefore, that it is right to refer to Obama as the "Hamilton of our age." But it is true that they both sought a consolidation of power within the federal government, and that is a cause for worry.