President Obama Failed to Redesign the Financial System

Posted by: Bruce Nussbaum on June 18, 2009

The “overhaul” of the financial regulatory system just proposed by President Obama avoids serious reform of the US banking system which rececently sent the world into the worst recession since the Depression. The opportunity to redesign and innovate a dangerous and out-of-control system is now lost. What FDR did in the 30’s following the bank collapse, Obama is failing to do—make hard decisions, anger people, create new institutions that force new behaviors, put the nation above special interests.

The US needs a fresh approach to banking that makes all financial instruments transparent, limits leverage and lets bankers and bankers who fail—fail. It needs to stop the policy of allowing private banks and bankers to benefit from rising profits and push loses onto taxpayers (privatizing profits, socializing loses). None of the reforms proposed by Obama does this. In fact, as the proposal winds its way through Congress, it is likely to get even more diluted and less effective.

What is needed is an end to the culture of speculation, a culture promoted by economists and policy-makers of both Democratic and Republican parties. But the culture of speculation goes much deeper than Washington policy or Wall Street. We, the people, changed the name of "gambling" to "gaming" somewhere in the 80s or 90s, legitimizing something our parents and grandparents disparaged. Poker became the favorite game of middle class kids. We embraced a culture of speculation that included debt, betting, leverage, poker, playing the odds. It is no accident that over the past 10-20 years, profits going to the financial sector doubled and tripled while profits going to innovative companies and manufacturing companies stagnated or fell.

We have to end the culture of speculation poisoning our society. But this overhaul of the financial system by the Obama Administration won't do it. The lobbying might of Wall Street and the ideological proclivities of the economic advisors inside the White House prevent it.

One can only wonder what will happen to health care reform. People who embraced social media to elect President Obama need to return to it to tell him that redesigning large social systems, such as the financial and health systems, requires innovative new ideas and the courage to face off and anger entrenched interests.

A.G. Lafley learned this at Procter & Gamble and did the hard stuff to transform his company. Can Obama, the great compromiser, be as tough?

Reader Comments

Fred Collopy

June 18, 2009 5:59 PM

Here is an idea that could provide some personal control over the culture of speculation (originally posted on May 5, 2009 at http://www.thinkoob.com/2009/05/05/production-mutual-funds/

In choosing to invest in a balanced portfolio of stocks most investors are electing to invest their available capital in the wealth potential of our (or the global) economy. In fact, many of us have inadvertently placed up to 40% of our funds into situations that have little to do with wealth creation and more to do with wealth management. A simple idea is to separate out the two so that investors can choose whether they wish to invest in one or the other, or some mix of the two.

I propose building diversified portfolio funds of companies that make things or provide concrete services and experiences. By concrete, I mean services such as restaurants, hotel stays, public transportation, auto repair, health care, and amusement park visits. I mean to specifically exclude activities such as financing, investment management, insuring, and hedging. The test for inclusion would be “would an ordinary person recognize this as a service they need or desire independent of its potential to affect their wealth?” To be included in these portfolios a company would have to generate all (or some clearly identified percentage) of its revenues from such non-financial activities.

Gong Szeto

June 25, 2009 2:14 AM

O is proving to be disappointing on this front. Looks equally bleak on healthcare and energy. He may indeed go 0 for 3 and one term. I find I have been shaking my head a lot lately. Sigh.

COMPTONCora28

January 8, 2011 3:34 AM

Some time before, I needed to buy a good house for my organization but I didn't have enough cash and could not buy something. Thank goodness my sister proposed to try to take the business loans at trustworthy bank. Therefore, I acted so and was satisfied with my commercial loan.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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