Obama's Speech on the Anniversary of Lehman's Demise

U.S President Obama is scheduled speak in NY near midday. He speech is expected to focus on the economy and the financial situation. As policy makers move from triage to reform, stark contrasts are emerging between the US and European approaches.

Several European policy makers have argued that "too big to fail" is "too big". Some officials seem to be sympathetic to breaking some banks up, or adopting something like the old US Glass-Steagall act that separates investment banking (casino/innovation) from commercial banking (utility). US officials, including Obama and Geithner favor imposing higher capital requirements on the "too big to fail" institutions.

European officials want to take stronger action to regulate pay and bonus schemes. The Obama Administration is reluctant to do more than moral suasion, except for those firms that have come directly to the public trough via TARP. A more comprehensive definition of government support could get bring in other institutions, but there does not seem to be much political will to do so.

Third, some Europeans, like the head of the FSA in the UK and some German officials seem to be moving to support a Tobin-like tax. Recall the Tobin tax was conceived as throwing some sand into the wheels of capital because of how efficient is was.

The purpose is to slow down short-term hot money flows. German Finance Minister Steinbruck, a Social Democrat and part of the current grand coalition, though he may be out of a job before the end of the month, if the CDU and FDP enjoy a sufficient margin of victory at the upcoming national election, has supported such calls ahead of the upcoming G20 meeting. Press reports suggest he is talking about a 0.005% tax on all financial transactions by banks, insurance companies and fund managers. The Obama Administration does not seem any more sympathetic that past US administrations.

Economic Advisor Lawrence Summers seems to be trying to keep hope alive that an overhaul of the US financial regulatory regime can be delivered this year, but given the dominance and importance of the health care reform, it seems unlikely that Summers will be able to deliver.

Obama's speech is unlikely to break new ground. He is likely to summarize what his administration has done thus far--backward looking--and assure investors and others that the government's involvement in the financial sector is temporary.