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Paulson's financial markets reform will do little for current crisis
Kevin G. Hall - McClatchy NewspapersIssue date: 3/27/08 Section: MCT News
WASHINGTON _ Treasury Secretary Henry Paulson makes public on Monday a new blueprint for regulation of the turbulent financial markets, one that has plenty to do with the future and little to fix what ails the economy right now.
The plan would merge some federal bank regulators, weaken the agency that regulates the stock market and broaden the shoulders of the Federal Reserve, which will become the chief regulator for the safety and soundness of financial markets.
It's the broadest reform of oversight in the financial markets since the aftermath of the Great Depression and is sure to touch off a frenzy by Gucci-shoed lobbyists in the months and years ahead.
The Paulson plan does not lack big ideas. It would allow insurance companies to opt out of state regulation in favor of a proposed federal insurance regulator. It would merge the regulation of the stock market and futures market. This is to better reflect how commodities like oil and soybeans have become a new investment vehicle that rivals stocks and bonds.
And for the first time, hedge funds, which are private pools of capital for the ultra wealthy, would come under federal regulation, albeit with a light touch.
The idea of modernizing the regulation of financial markets predated today's current turmoil, and it was one of the reasons Paulson left his post as CEO of investment bank Goldman Sachs & Co. to take what many two years ago saw as a dead-end job.
In a tacit admission that the federal government failed in overseeing the housing boom from 2001 to 2006, Paulson would set up a new federal Mortgage Origination Commission, comprised of several bank regulators, to oversee mortgage finance.
"The high levels of delinquencies, defaults and foreclosures among sub-prime borrowers in 2007 and 2008 have highlighted gaps in the U.S. oversight system for mortgage origination," said a draft executive summary to be included in Monday's report.
During the boom years, President Bush touted his vision of an "ownership society" with record levels of home ownership. Lending standards eroded, particularly for sub-prime loans, which are issued to the weakest borrowers.
The plan would merge some federal bank regulators, weaken the agency that regulates the stock market and broaden the shoulders of the Federal Reserve, which will become the chief regulator for the safety and soundness of financial markets.
It's the broadest reform of oversight in the financial markets since the aftermath of the Great Depression and is sure to touch off a frenzy by Gucci-shoed lobbyists in the months and years ahead.
The Paulson plan does not lack big ideas. It would allow insurance companies to opt out of state regulation in favor of a proposed federal insurance regulator. It would merge the regulation of the stock market and futures market. This is to better reflect how commodities like oil and soybeans have become a new investment vehicle that rivals stocks and bonds.
And for the first time, hedge funds, which are private pools of capital for the ultra wealthy, would come under federal regulation, albeit with a light touch.
The idea of modernizing the regulation of financial markets predated today's current turmoil, and it was one of the reasons Paulson left his post as CEO of investment bank Goldman Sachs & Co. to take what many two years ago saw as a dead-end job.
In a tacit admission that the federal government failed in overseeing the housing boom from 2001 to 2006, Paulson would set up a new federal Mortgage Origination Commission, comprised of several bank regulators, to oversee mortgage finance.
"The high levels of delinquencies, defaults and foreclosures among sub-prime borrowers in 2007 and 2008 have highlighted gaps in the U.S. oversight system for mortgage origination," said a draft executive summary to be included in Monday's report.
During the boom years, President Bush touted his vision of an "ownership society" with record levels of home ownership. Lending standards eroded, particularly for sub-prime loans, which are issued to the weakest borrowers.
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