or just right? I don’t have the knowledge or expertise to say whether the proposals for regulation reform by Treasury Secretary Henry Paulson is the right mix or not:
WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.
The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.
Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.
According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.
While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.
The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.
The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system.
And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.
It’s obvious (at least to me) that, if the Fed is going to underwrite investment banks, it will need to regulate them, too.
Most of the commentary on the plan I’ve seen so far has been ideological or partisan in nature or, said another way, not worth considering.
Is the plan not enough, too much, irrelevant, too little too late? Informed commentary gratefully received.
Update
Justin Fox predicts a vigorous battle in opposition to the reforms:
One final note: The lobbying campaign to prevent Paulson’s proposed reforms from happening, or tweaking them to favor particular sectors of the financial business, will be one of the most aggressive and expensive Washington has ever seen. So while the plans sure look like a step in the right direction, the final result may not be.
