Meltdown Memories

Posted Sept. 16, 2009, at 7:29 p.m.

If you’ve ever been pulled over for speeding, you know the drill. You tell the officer you usually don’t drive this fast, you weren’t paying attention to the signs and you’ll never do it again. Whether you escape without a ticket or not, your promise to drive more slowly and follow the rules — made with all good intent — lasts for days, maybe weeks. Then it’s back to pushing the limits.

That same dynamic will play out on Wall Street when the economy recovers. Just like our roads, the economy needs speed limits. Pledging to end the boom- and-bust cycle, President Barack Obama used the first anniversary of the collapse of Lehman Bros. to make a speech on Wall Street urging Congress to make regulation a priority.

Months ago, the president unveiled a plan that would centralize banking and investing oversight under the Federal Reserve. Such one-stop shopping makes sense, just as it made sense to create the Department of Homeland Security to be the parent organization for the Federal Emergency Management Agency, Customs and Border Protection and others.

Consumer advocacy must play a large part in the plan, and to achieve this, the president wants to create a Consumer Financial Products Agency. The investor class is an important component of the economy. And since many Americans now count on their IRAs and 401(k)s, we all have a stake in Wall Street. That, coupled with the role home mortgages played in this crash, highlights the important role the middle class plays in the health of the economy. But the fate of middle-income Americans was not a priority of the last administration.

In his speech Monday, Mr. Obama tried to shame the bankers and investors among the audience of 150. “We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses,” he said. “Those on Wall Street cannot resume taking risks without regard for consequences and expect that next time, American taxpayers will be there to break their fall.”

As the economy recovers, free market advocates will get louder in their opposition to such regulation. But the economy has always relied on a firm regulatory hand. The president’s speech was at Federal Hall in New York, where President George Washington was inaugurated. Mr. Obama cited the debate over government control of the economy that raged in the 1790s; Thomas Jefferson wanted to see a decentralized agrarian economy, while Alexander Hamilton favored a national bank controlling the flow of money. Hamilton won. That debate is over.

So on this first anniversary of the near crash, the need to put up speed limit signs for the economy is critical. As the president said, “[W]e need strong rules of the road to guard against the kind of systemic risks that we’ve seen.” The problem is that by next September, the memory of the terror of last year will have faded. Now is the time for action.

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