Are we finally getting serious about regulatory reform?

The timing and circumstances of yesterday’s White House announcement of a new policy direction against the nation’s banking industry provide mixed signals about the underlying seriousness of the effort. First, the policy itself is just a sketch, just a rough collection of ideas that have been floating about within the administration. We need more detail. Second, I find it hard to believe that the congressional members present – Frank and Dodd – have any real interest in the White House plan after working for a year on their own plans. They are probably wondering why these proposals weren’t announced last summer, when there was more political will in Washington to act, and in Dodd’s case, I have doubts as to his ardor for reform in the first place. Third, the timing of the announcement – immediately after the stunning election loss in Massachusetts – strikes me as suspect, a mere means of giving the press something else to talk about and getting the conversation off of health care, which many conclude was the proximate cause of the electoral defeat.

These things suggest that the announcement yesterday was more photo opportunity than the introduction of substantive ideas.

Already, there are naysayers hacking into the announcement, despite the lack of substantive details. In principle, I’m onboard with the rules against proprietary trading desks, but much more is needed. After all, it wasn’t prop desks that created the problem. Indeed, there is no single-bullet theory for the financial crisis, but as Felix Salmon discussed this morning on his blog, cutting prop desks down to size will change the culture at banks, and the broader problem with Wall Street is as much cultural as structural or regulatory.

Overall, I think we’ll know we’ve entered a serious phase of the discussion when concrete ideas are floated concerning the strict regulation of derivatives contracts and stronger oversight of the mortgage industry. These things won’t prevent another financial crisis – and perhaps nothing can – but they will prevent us from having precisely the same kind of crisis.