The Obama administration's regulatory reform plan is struggling due to its complexity and needs to be slimmed down. The plan would fare better and potentially achieve some good if it were concerned less with tangential issues of interest only to the Federal Reserve Board and focused instead on averting future economic disruptions.

The proximate cause of the current downturn was the meltdown of the securitization markets, and that is where a reform plan should be directed. Securitizations had become a major international economic engine, but there was no effective control. Instead there were a lot of incentives for brokers and investment banks to stomp on the accelerator and hold it down until the engine blew up. When the markets imploded, the repercussions affected everyone who relied on those markets for funding and to trade assets at full value.

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