Posted on 03/31/2008 1:13:34 PM PDT by kiriath_jearim
The US administration Monday proposed a broad overhaul of financial market regulation in an effort to restore confidence in a system reeling from the subprime mortgage mayhem.
The announcement comes as the US regulatory system is blamed for failing to prevent rampant excesses in mortgage lending that set off what is now seen as the worst financial crisis in decades.
"Government has a responsibility to make sure our financial system is regulated effectively. And in this area, we can do a better job," Treasury Secretary Henry Paulson said in unveiling the plan.
Although the plan was announced amid a crisis of confidence in financial markets, Paulson said it has been in the works for months and is not "a response to the circumstances of the day," but aimed at addressing "complex, long-term issues" to help make markets more efficient and competitive.
Under the proposal described as the most sweeping since the Great Depression, the Federal Reserve would gain oversight of Wall Street securities firms which now have access to the central bank's emergency lending facilities.
The plan also calls for a new federal panel that would oversee state systems for regulating participants in mortgage lending.
It would eliminate the differences between supervision of banks and savings and loan institutions, creating a single entity to regulate both, and merge the Securities and Exchange Commission, which regulates companies with publicly traded shares, with the Commodities Futures Trading Commission, which oversees commodities trading.
The blueprint also sees an "optional" federal charter for insurance companies that would allow the federal government a role in overseeing another key component of the financial system.
Some observers described the plan as the most ambitious overhaul since president Franklin Roosevelt launched the current regulatory structure after the Wall Street crash and bank failures that were part of the 1930s Great Depression.
Yet Paulson said that with few exceptions, the recommendations "should not and will not be implemented until after the present market difficulties are past," he said.
The Treasury's most urgent priority is working through the housing downturn and market disruption and it will remain so until the problems are resolved, he added.
President George W. Bush's administration and the central bank are trying to shore up confidence while minimizing the impact of the meltdown in housing stemming from "subprime" loans made to people with shaky credit which helped inflate a real estate bubble.
The proposal elicited a wide range of reaction from praise to skepticism.
"For those of you who think we are not in a recession, are you convinced now? Forget recession, we have jumped right into depression-like reforms," said Kevin Giddis, market analyst at Morgan Keegan.
Analysts at Wrightson ICAP said the plan "would create a more coherent supervisory scheme and would eliminate some of the inconsistencies arising from today's patchwork system."
Tim Ryan, president of the Securities Industry and Financial Markets Association, said Paulson "delivered a thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes."
He added: "Treasury's three-step approach is very wise because it allows time for serious analysis, discussion and important choices."
Princeton economist Paul Krugman however said the plan is "about creating the appearance of responding to the current crisis, without actually doing anything substantive."
Krugman said the Bush administration "has spent the last seven years trying to do away with government oversight of the financial industry."
Robert Eisenbeis, economist at Cumberland Advisors, said his reaction was "is one of general disappointment" in the proposals.
"Despite the claim that they are not in response to the current problems, this set is like the other in that they are largely recommendations that either have been on the back shelf and/or are knee-jerk responses to perceived immediate problems," Eisenbeis said.
Exactly the kind of stuff that we were assured wouldn’t happen if we just held our noses and voted Republican. And now we are being asked to do so again.
“market oversight”
Gosh, I believe Putin’s enacted similar policies in Russia. I’m so proud.
Barn-Door-Wide-Open-Years-Etc-Etc
The government has done such a great job managing its own finances, and overseeing the Social Security Trust Fund, as well as the Medicaid program, why would we doubt its ability to regulate the financial markets?
In fact, their sterling track record fills me with confidence in our future, now that the government is seriously getting into the business of regulating the climate. I’m sure it will do a similarly great job.
>>Gosh, I believe Putin’s enacted similar
>>policies in Russia. I’m so proud.
And the illusionary veil, separating corporatism from communism, thins...
Wrong. Krugman is as usual protecting his liberal buddies the Clintons - it was under Clinton’s administration that the Glass-Steagal act was repealed.
That said, Bush is shutting the door years after every horse in the barn was already out said door and galloped away.
“The government has done such a great job managing its own finances, and overseeing the Social Security Trust Fund, as well as the Medicaid program, why would we doubt its ability to regulate the financial markets?
In fact, their sterling track record fills me with confidence in our future, now that the government is seriously getting into the business of regulating the climate. I’m sure it will do a similarly great job.”
Don’t forget health care. No patient left behind.
The only feature that I think is probably worth pursuing is the insurance reform, since it might actually reduce some of the regulatory burden for some insurance companies (and perhaps the GSE regulatory reform, although if we are talking about long-term fundamental reform, why not talk about simply disbanding the GSEs entirely?)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.