A year later, little has changed

— One year after the onset of the economic shock that brought the American economy to the brink of collapse, the most amazing aspect of the crisis is how little has been done to ensure that something like this never happens again. Dithering in Congress and a business-as-usual attitude on Wall Street have left American consumers and the economy vulnerable to another punishing disaster sooner or later.

With the exception of out-and-out crooks like Bernie Madoff and a couple of others, no one has been punished for what President Obama, in a rebuke to Wall Street executives, labeled "reckless behavior and unchecked excess." The administration has crafted a regulatory reform proposal, but it remains a work in progress, and the banking and money-management industry is fielding an army of lobbyists to fight its enactment.

The reform proposal is important because it would hand the federal government badly needed tools to enforce common-sense rules that Wall Street seems incapable of following on its own. Surely the financial crisis demonstrated that free markets cannot thrive without better rules and effective regulation.

But better rules are just part of the problem. A lackadaisical attitude by regulators for most of this decade turned the economic supervisory agencies into toothless watchdogs.

That has to change if the American investor is going to be protected. That's why it was heartening to see a federal judge in Manhattan last week revoke a cozy settlement between the SEC and Bank of America over allegations of wrongdoing involving bonuses paid to Merrill Lynch before a federally approved merger at the height of the meltdown.

Federal Judge Jed S. Rakoff was rightly outraged that Bank of America was let off with a relatively puny fine of $33 million when it was alleged to have lied to its own stockholders about a payment of $3.6 billion in end-of-year "performance bonuses" for the Merrill Lynch executives who ran their firm into the ground.

Ultimately, however, the economic system can't rely on the outrage of federal judges, no matter how well justified, to keep the system honest. The administration's reform proposal offers a better guarantee of investor security. Among other things, it would:

-Create a new consumer protection agency in the banking/financial field to write and enforce a new set of rules.

-Add more capital requirements for big banks, reducing their ability to invest with borrowed money.

-Allow regulators to "wind down" businesses in trouble in an orderly manner during bailouts. This matters, because creditors of bailed-out banks saw few, if any, losses. With more government wind-down authority, creditors could contribute to the bailout, sparing taxpayers.

The Wall Street executives who listened to President Obama said afterward that they support the notion of reform. But what they're doing and what they're saying are two different things.

Mr. Obama rebuked them for "the appetite for quick kills and bloated bonuses" that created unacceptable risks. He vowed that American taxpayers won't be there to rescue Wall Street next time.

Talking a good game isn't enough, though. Mr. Obama must persuade Congress to adopt his proposals so that next time never happens.

Editorial, Pages 10 on 09/21/2009

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