Business | Economy
Voters mandate rewriting of Greenspan script
US President-elect Barack Obama can rewrite the Greenspan-era rules of finance, backed by a solid Democratic majority in Congress and an American public furious about the credit crisis.
- Agencies
- Published: 23:32 November 5, 2008
Washington: US President-elect Barack Obama can rewrite the Greenspan-era rules of finance, backed by a solid Democratic majority in Congress and an American public furious about the credit crisis.
Exit polls showed the economy was the dominant factor in Obama's decisive victory over Republican Senator John McCain on Tuesday, giving the new president a clear mandate to pursue the more populist approach to capitalism that he promoted throughout his campaign.
"At a moment like this, we can't afford four more years of spending increases, poorly designed tax cuts, or the complete lack of regulatory oversight that even former Federal Reserve Chairman Alan Greenspan now believes was a mistake," Obama wrote in a Wall Street Journal editorial this week.
For Wall Street - and other finance capitals that followed New York's lead - that probably means a flurry of laws aimed at protecting homeowners and borrowers while tightening restrictions on banks and the investments they sell.
Obama has also proposed an economic stimulus plan that would include money for infrastructure, and he favours reforming the bankruptcy code to help homeowners and make it easier to restructure troubled mortgages.
Greenspan, a firm believer in free markets, was nicknamed "the maestro" after his tenure at the US central bank coincided with a lengthy period of strong economic growth.
But he has since become a symbol of deregulation and critics have blamed him for allowing financial firms to outgrow government oversight. As losses piled up around the world in late October, Greenspan acknowledged that he was "partially" wrong to resist regulation of some securities.
"Those of us who have looked to self-interest of lending institutions to protect shareholder's equity - myself especially - are in a state of shocked disbelief," Greenspan told members of Congress.
Obama will not have the luxury of time. There is little doubt that the US economy is slipping into a recession, perhaps the deepest since the 1970s, and the global economy is in grave danger of its first downturn in seven years.
World leaders are not waiting for the January inauguration to plan the broadest reform of the global financial system since the aftermath of the Great Depression in the 1930s. Investors are certain that tougher rules are coming.
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