Obama today announced his proposal for restructuring the financial sector, and although there are some excellent parts of the proposal, with real teeth on them (new standards on leverage, for example), the overall gist of the package is oversight. His accompanying explanation also focused on oversight:

Mr. Obama told reporters on Tuesday that a "lack of oversight" allowed what he called "wild risk-taking." He said it led to "very dangerous" conditions that imperiled the global economy.

He believes there need to be more guards on watch, in effect. More (and more independent) weathermen and women, more border guards. In this view, the crisis happened–bottom line–because not enough good people were watching out for risk.

I think this is the wrong view. Instead, real reform has to include a recognition of the political economy that led the watchers (the Fed, the OTS) to not see the risk, or to allow it. Real reform has to include structural reforms, like breaking up massive financial institutions that are still exercising disproportionate political power over policies that are supposed to constrain them.

For a great breakdown of the proposal, and the "Good, Bad, and Ugly" parts, read Robert Weissman’s review here.

The New York Times article about the proposal, cited above, suggested political reasons for Obama’s timidity in this area. If that’s right, I think the political bet is misguided; Americans are far more open to entrepeneurial efforts in reforming the economy than I gather many in the administration suspect. As the economy continues to falter, the man on the bus will not be happy with the plea that "we brought more oversight"; he would rather hear that "we brought change."