April, 24, 2010

President Obama’s speech on financial reform at Cooper Union was not rhetorically memorable, but substantively he hit the right notes. His defense of the need to give the government resolution authority over large financial institutions and his explicit refutation of the idea that resolution authority puts the government on the hook for future bailouts was clear.

He focussed, appropriately, on the need to limit excessive risk-taking by systemically important and government-supported financial institutions, and the importance of changing the incentives that place a premium on short-term profits rather than long-term gain (although this, I suspect, will be the hardest thing to achieve and is not something the current financial-reform bill will necessarily do much about—it really requires shareholders and boards of directors to step up.

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