Banking Reform

It's Past Time to Rectify Financial Capitalism's Excess

The only regret left behind by U.S. President Barack Obama's declaration of war against Wall Street Thursday is that it should have come far earlier.

If Obama had taken the action right after the outbreak of the financial crisis in 2008, the fat cats at megabanks wouldn't have dreamed of throwing another bonus party at the expense of troubled taxpayers.

Critics of the U.S. President downplay it as just another populist agenda item to make up for considerable setbacks in health care overhaul. U.S. domestic politics aside, however, both reforms are goals worthy of pursuit to improve the increasingly harder lives of the general public.

President Obama's struggle in these reform attempts is rather a grim reminder of the far too powerful industry lobbies, which some European leaders cite as the reason for the U.S. failures in these particular sectors. It remains to be seen whether and how the Democratic president's proposal will pass the U.S. Congress, particularly the ``filibuster-restored" Senate.

Considering the responses in major countries, including Britain, which are largely sympathetic for Obama's banking reform ― which is marked by a cap on the size of banks and a ban on risk-happy investment ― the latest financial regulations will likely retain its core contents. Obama's vows not to let ``American taxpayers be held hostage by a bank that is too big to fail," should be heard elsewhere in the world, including Korea, where some greedy, unethical businesses try to ``privatize benefits and nationalize losses."

At issue here is what effects the policy turnaround in America, and probably in Britain, will have on the domestic financial industry, which has been bent on expanding bank sizes and jumping into investment banking by taking Anglo-American financial capitalism as its role model. In a way, the domestic financial firms appear set to enter the arena that the U.S. and U.K. firms are exiting or being forced to do so.

It's still too early to tell whether the new environment will lead to more business opportunities or a premature death knell for the fledgling Korean investment banks. With or without the global financial crisis, however, the domestic financial service firms should have expanded or diversified their businesses with extreme caution and completely at their own risks, a lesson which they should bear in mind more deeply on the occasion of overseas fiascoes.

More immediately, Korea's financial and monetary officials will need to remain alert against the possible market fluctuations resulting from Obama's shock therapy and its repercussions on global financial markets.

The authorities should also learn how regulatory relaxation and supervisory negligence, or government failure in other words, can combine with market failure caused by greedy businesses to wreak havoc on the overall economy and throw the lives of numerous innocent victims into trouble.

In a longer-term and wider perspective, Obama's economic policy calls for shifting its focus from Wall Street to Main Street, going back from a top-down to a bottom-up economy led by stronger small businesses and blue-collar workers, and is something from which the Lee Myung-bak administration has much to learn.

Seoul wants to emerge as one of the global agenda-setters at the G20 summit in November. It would do well to seek global cooperation for imposing taxes on speculative financial transactions and creating a fund to help troubled countries, like Haiti.