There are three views on who exactly is behind financial regulatory reform package that has just been presented. Each view has distinct implications for political dynamics going forward.

The first view is that Tim Geithner and Larry Summers have genuinely become radical reformers. They see the error of the ways they pursued during the 1990s--both in terms of financial deregulation for the United States and in their advice to other countries, particularly through the capital market liberalization policies urged upon the IMF. They now seek to put globalized finance back in its box and will pursue any sensible means possible to this end.

This view is not widely held.

The second view is the consensus: Geithner and Summers want a minimal degree of reform with a great deal of window dressing. This interpretation is supported by the fact that most of the specifics with regard to large financial firms look like moderate technocratic tweaks, i.e., hardly what you'd expect in the aftermath of what the President himself called, "the worst financial crisis since the Great Depression."

It's true--and always pleasing to officials--that you can get a nice media bump with background briefings on all the effort that has gone into the proposals. But honestly, what in the administration's proposals is strong enough to have prevented this crisis, let alone preempt the next crisis which, by all indications, could be even larger--now that big financial players know for sure they are too big to fail?

The administration could have taken over Citigroup--e.g., placing it into negotiated conservatorship--at several points in the last nine months. It did not. Draw your own conclusions and think for a moment about how this will influence future actions in the financial sector.

The third view is more interesting and also controversial: Geithner-Summers have exercised an effective veto over measures that would have constrained large firms directly, but they are not at this time strong enough to prevent sensible consumer protection measures from also going forward.

In this view, someone (Cass Sunstein?) and his/her allies have managed--at least so far--to promote the idea of a consumer protection agency focused on financial products. The details are not yet clear enough to see how what will emerge, and we also don't yet know how vigorously Treasury will defend this idea against the financial sector lobbies. But at least this is something new and potentially powerful in all the right ways.

Sunstein, of course, is known for the idea of a Nudge--pushing consumers ever so gently towards better decisions. It's a fine principle to guide thinking, but lobbies, opponents within the administration, and members of congress with their own agenda will not be moved through gentle means. 

This is going to be quite a fight.

[Cross-posted at The Baseline Scenario.]