Finance Reform: Obama's Missed Opportunity

NEW YORK (TheStreet) -- In the wake of President Obama's speech Monday, one piece of possible finance reform less explored is with derivatives, including credit default swaps, commodities and other over-the-counter issues. Despite the president's inspired speech preaching responsibility on Wall Street, we really haven't come very far in this area in the year since the demise of Lehman Brothers.

Part of the problem I had with his impassioned speech was with the lack of specifics. Despite being a great supporter of the president and having voted for him, I find many of his speeches great oratory events with little substance contained in them.

In his talk of finance reform, Obama made some vague calls for increased capital requirements for the big banks, a requirement that in and of itself wouldn't have prevented the cataclysm we experienced last year.

As to the most important ideas of transparency in markets, Obama focused on the idea of a "consumer czar" or other advocate in Washington who would somehow prevent the sale of mortgages that people couldn't understand or afford. How this would be done, however, remains a mystery.

But derivatives, which clearly exacerbated the financial downturn last year, were left conspicuously out of the president's speech. This is an interesting omission because they had gotten so much interest in their operation and their reform last year, but now seem to be on a very far back burner and not gaining much attention anymore.

This is a shame because I believe that derivatives, much more than shady mortgage practices, create a far greater threat to our financial health going forward.

What's interesting is that the Bush administration had taken the greatest strides in bringing transparency to this market, and the Obama administration, while having public sentiment and great momentum on their side, has really dropped the ball here and squandered a great opportunity.

It was former Treasury Secretary Henry Paulson who issued the ultimatum for transparency in credit default swaps, requiring a clearinghouse structure for clearing of these instruments. But since President Obama was inaugurated, Treasury Secretary Tim Geithner has done nothing to follow up on these initiatives, essentially leaving the market exactly as it was and leaving us open again for another "AIG(AIG Quote)-like" problem.