“Normalcy Cannot Lead To Complacency”

James Surowieki on yesterday's speech:

The key line in Barack Obama's speech…on the need for new financial regulation was the straightforward statement: "Normalcy cannot lead to complacency." This is a real danger: as I argued back in April, while it would have been disastrous had the government's bailout efforts failed, their success was inevitably going to create the risk that "reformist pressure may well dissipate," as people became less anxious about the survival of the financial system.

This, roughly speaking, has been the pattern of financial crises in the U.S. over the past thirty years: big banks get into trouble and people start talking about the need for meaningful reform, then the banks work their way out of trouble (with the help of the Federal Reserve and bank regulators, and sometimes, as in the case of TARP, with the help of state funding), and the reforms never materialize. Obama's speech, coming as it did a year after the failure of Lehman, was an argument for why that should not happen again. The substance of the speech was not new — the reforms Obama advocated were essentially the same as those Treasury Secretary Tim Geithner unveiled in late March. What was important about it was Obama's rhetorical commitment not merely to tinkering around the edges of the financial industry, but rather to "the most ambitious overhaul of the financial system since the Great Depression."