Is Obama Flubbing the Financial Fix?

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"If you want to get something done in Washington, it's always a good idea to get it done quickly," says Ogilvie, "because if it bogs down, it tends to be pretty difficult to un-bog."

Geithner adamantly denies that the recovery and a diminishing sense of crisis are lowering the impetus for reform. "I don't see any signs of that yet," he said at a press briefing before leaving for the G-8 talks over the weekend.

And following those talks in Italy, Geithner reiterated his commitment to a strong package of reforms to lessen the risks both at home and abroad. The Administration's upcoming proposals will not only include comprehensive reforms for the U.S., Geithner said in a statement, they will also offer more conservative standards for oversight of the most active international financial institutions as well as global markets such as derivatives.

"Because risk does not respect borders, we will put forward several international proposals in our reform package that will help to raise standards globally," Geithner said.

obama's m.o.: Lots of Talk, Less Action?

Still, some critics sense that the Administration is about to fumble an opportunity—and follow a pattern increasingly seen throughout this Administration's policy agenda: strong language followed by actions that appear far weaker than the rhetoric.

Take the Administration's new proposals on executive pay. For months, officials from the President on down have been talking about the need for wide-ranging changes to the executive-pay practices they believe contributed to the financial crisis. Yet when Geithner announced a series of proposals on June 10 aimed at reigning in excessive compensation and ensuring that pay structures don't encourage traders and executives to take excessive risks to boost short-term pay at the expense of the long-term stability of their companies, the measures were much less stringent than many had expected—or corporate executives had feared.

"They've proven to be fairly moderate in this area," says Michael S. Melbinger, head of the compensation practice at Chicago's Winston & Strawn, who says the measures don't go much beyond what is already becoming best practice at many companies. Moreover, despite backing for legislation that would authorize shareholders to hold nonbinding votes on executive compensation packages—so-called say on pay measures—and tighten requirements for members of board compensation committees, it is far from clear how the Administration's proposals would truly limit the risk-taking and poor judgment that led to big pay packets followed by the collapse of many financial firms.

"The Administration has put forth several principles for executive compensation that should be followed, but people have understood these principles for a long time," says Jesse Fried, a professor at the University of California at Berkeley and co-author of Pay Without Performance: The Unfulfilled Promise of Executive Compensation. "It can't hurt to have the Treasury Secretary repeat them, though mere repetition is not that helpful. Unless the balance of power between shareholders and executives shifts, I don't see any change coming."

still encouraging debt-driven consumption

Or look at the frequent talk, since the crisis began, of the need to rebalance the U.S. economy away from consumption toward encouragement of more savings and more investment. Over the long run, few quibble any more with the notion that debt-laden U.S. consumers can no longer be the primary engine for growth not only for the U.S. economy but for the global economy as well. But while there is much talk of the long-term need to reduce consumption to sustainable levels, in the short run little or nothing is being done to encourage that shift.

Quite the contrary: Current policies seem designed to get consumers to crank up the debt and consumption machines again. That's the inevitable outcome of current proposals to offer large tax credits for first-time home buyers—even those with little or no savings to make a down payment—or encourage car owners to turn in their old clunkers by subsidizing the purchase of a new car. While certainly useful for getting the economy going in the short term, such moves would do little to spur the inevitable cutbacks in debt that are required.

"Consumer spending is over 70% of GDP. Obama is not going to let it drop to 65%," says Clifton. "He can do the right thing and let the consumer deleverage—and he can also be a one-term President. It's not going to happen."

This isn't solely an American phenomenon. As the sense of crisis recedes, similar questions are arising across the globe over whether governments will pull back from needed changes. As much as the U.S. needs to boost its savings and investment, a healthier global economy will also require the Chinese to lessen their dependence on exports and put more into domestic consumption. While many in China's leadership see a need for fundamental reforms, there are also plenty of others who believe that as the worst of the crisis passes, nothing that extensive is needed.

"Like any leadership, there are people in government there who hope that things will just go back to the way they were," says one senior U.S. Administration official. That could be said of many in the U.S. government as well.

With reporting by Theo Francis

Sasseen is Washington bureau chief for BusinessWeek.