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Financial Market Regulatory Proposals by the Obama Administration

The Obama Administration is gearing up to reform the financial marketplace. Today, two proposals were released. The first, according to the New York Times,"seek(s) new authority to supervise the virtually unregulated complex financial instruments, known as derivatives, that were a major cause of the market crisis.."

And, according to Reuters, the second proposal "reforms..financial industry compensation practices to discourage excessive risk-taking, which is considered to have sown the seeds of the current credit crisis."

The two proposals are linked and reinforcing. The derivatives reform play seeks to eliminate or regulate a key tool used by executives at financial institutions to justify large amounts of compensation. (Unless you can produce outsized returns via standard financial instruments, extremely generous pay packages are unlikely to be received.)

And, in case that fails, the compensation reform play says we will limit your compensation no matter what you do.

All in all, a very good day.

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