Paulson Proposes Financial Overhaul

[Martrae]

Mar 31, 1:19 PM (ET)
By MARTIN CRUTSINGER

WASHINGTON (AP) - The Bush administration Monday proposed the most far-ranging overhaul of the financial regulatory system since the stock market crash of 1929 and the ensuing Great Depression.

The plan would change how the government regulates thousands of businesses from the nation's biggest banks and investment houses down to the local insurance agent and mortgage broker.

Treasury Secretary Henry Paulson unveiled the 218-page plan in a speech in Treasury's ornate Cash Room, declaring, "A strong financial system is vitally important - not for Wall Street, not for bankers, but for working Americans."

The administration's plan drew criticism, however, from Democrats who said it did not go far enough to deal with abuses in mortgage lending and securities trading that were exposed by the current credit crisis. Some state officials criticized what they saw as unwanted federal intrusion on their turf.

Massachusetts Secretary of the Commonwealth William F. Galvin blasted Paulson's approach as "a disastrous backward step that would put the investor in jeopardy" because it would pre-empt state regulation of securities and insurance.

The administration said that it planned to work with Congress to have constructive conversations, but officials would not predict when any aspects of the proposal could be enacted into law.

Asked if Bush's goal was to get the overhaul approved before he leaves office, presidential press secretary Dana Perino told reporters aboard Air Force One, "We'll have to see. It is a big attempt."

The plan, which would require congressional approval for its biggest changes, seeks to trim a hodge-podge collection of overlapping jurisdictions that date back to the Civil War.

It would give the Federal Reserve more power to protect the stability of the entire financial system while merging day-to-day bank supervision into one agency, down from five at present.

It also would create one super agency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.

It would propose eliminating the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.

It would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers, many of whom now operate outside of federal regulation, and it would also take a first step toward federal regulation of the insurance industry by asking Congress to establish an Office of Insurance Oversight inside the Treasury Department.

Paulson acknowledged in his remarks that most of the changes will not occur until after a lengthy debate in Congress, leaving it to the next administration to deal with the biggest changes proposed by the report. He also said the Bush administration's focus would remain on getting through the current severe credit crisis, which has roiled financial markets since last August.

Paulson rejected Democratic charges that it was lax regulation of mortgage brokers and the financial industry that had led to the current problems.

"I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil," he said. "I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years."

Sen. Charles Schumer, D-N.Y., said he strongly disagreed with Paulson. "The unregulated corners of our economy did much to contribute to the meltdown in our housing market and the accompanying spillover to our financial markets," Schumer said in a statement. "The administration's 'deregulation-above-all-else' attitude helped cause the problems we now face."

Banking groups raised strong objections to the plan while other groups expressed approval.

"Dismantling the thrift charter and crippling state banking charters will weaken banking in America," said Edward Yingling, president of the American Bankers Association.

Tim Ryan, head of the Securities Industry and Financial Markets Association, which represents more than 650 securities firms, banks and asset managers, praised the overhaul proposal and said there was widespread agreement on the need for modernization in an era "where billions of dollars race across the globe with the click of a mouse."

In Congress, House Financial Services Committee Chairman Barney Frank, who is working on his own regulatory revamp, called Paulson's proposal a "constructive step forward" but said it wouldn't give the Federal Reserve enough authority to carry out its expanded job to police the stability of the entire financial system.

Many Democrats said that Congress' first priority should be to deal with the current mortgage crisis that is threatening millions of Americans with the loss of their homes and that an extensive debate on a regulatory overhaul should not occur until a new president is in office next year.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., said in an appearance on CBS'"Early Show" that it was not a failure of the regulatory scheme but "a failure of leadership" that led to the current crisis.

The proposed overhaul would be the most extensive since the current regulatory system was created in response to the 1929 stock market crash and the Great Depression.

It comes at a time when the financial system faces its most severe credit crisis in two decades, one that has resulted in billions of dollars of losses for big banks and investment houses and the near-collapse of Bear Stearns, the country's fifth-largest investment bank.

The rising tide of bad debt has made it harder for consumers and businesses to get credit, further weighing on an economy struggling with a prolonged housing slump and soaring energy prices. Many economists believe the country is already in a recession.

[Harrison]

The fucking government needs to do this shit preemptively and stop waiting for crises to arise before they lift their fat fucking fingers.

[Evermore]

the fucking government needs to mind it's own business.

[Harrison]

Well that goes without saying most of the time. But if they're going to meddle, they should at least do it when it matters and not as an afterthought.

[Evermore]

As fucked up as our government is, whats the difference? before or after?

[KaiineTN]

I wouldn't be at all surprised if all the economic shit we're going through was actually knowingly caused by federal reserve abuses with the goal of gaining more power so they can "solve" it.

[Minrott]

Yay. More governmental control is always the answer. Markets never correct themselves, and if it weren't for elected officials we'd all be sustenance farmers.

[Evermore]

Shh Minrott! there are some here that think the government shits gold bricks and is all knowing and all powerful. THey may turn you in!

[Tikker]

you should be careful not to mention goverment at all

some here are deathly afraid of their elected officials

[Evermore]

hmm afraid of thieves, liars and murderers? nah... no one here.

[Arlos]

You don't think there needs to be some governmental protection against lenders lying to people? How about telling them one thing, while really selling them something else? How about restrictions against lying to investors about the security of the debt they're buying?

The lending industry did *ALL* of that, and more. You think that such dishonesty and dirty dealing should be just fine, especially since it went a long way to CAUSING the current crisis?

-Arlos

[Evermore]

what do you think a financial institution would react faster too? Government regs or their customers pulling their cash out of their system? Please remember that these financial institutions have lobbists in washington before you answer.

[Kramer]

the entire thing happened because there was a bubble. people made terrible mortgage decisions and others cashed in on their stupidity..... until they could no longer finance their stupidity.....

if the government wants regulate something like

recommended minimum licensing standards for mortgage brokers

i can see that, that would offer minimal protection for consumers. but beyond that, people should be educated about the product they buy and learn from their mistakes, not be bailed out by the government.

[Evermore]

the entire thing happened because there was a bubble. people made terrible mortgage decisions and others cashed in on their stupidity..... until they could no longer finance their stupidity.....

if the government wants regulate something like

recommended minimum licensing standards for mortgage brokers

i can see that, that would offer minimal protection for consumers. but beyond that, people should be educated about the product they buy and learn from their mistakes, not be bailed out by the government.

the entire thing happened because 2nd tier lenders loaned money to people that cant afford it and the people recieving the money didnt stop to consider the drawbacks of an ARM. You are correct people should be educated on the products they buy. The government needs to stop bailing out fools and idiots.

[Kramer]

aka "terrible mortgage decisions"

but beyond that, people should be educated about the product they buy and learn from their mistakes, not be bailed out by the government.

my wife and i have learned plenty of hard financial decisions concerning (student loans, car purchases, etc) it did not mean we were victims. it meant we were ignorant and had to learn some things on our own.

[Harrison]

There are also those that were blatantly lied to.

[Arlos]

Yeah, but there are all sorts of practices that should be illegal.

For example, some lenders were accepting personal assertions as to someone's income, without ever checking on it in a lot of cases. One case I read about, some guy claimed to be an engineer making 6k a month. When someone actually checked on it, a single phone call turned up the fact that he was really a janitor (ie, "sanitation engineer") and was making 1500. Now, obviously, the guy lied, but the problem came into the system when mortgage lenders would sell those mortgages to investors all bundled together and represented them as high-quality investments.

Remember, the problem is not just between lenders and people buying houses. The lending companies were selling packages of loan debt to investors, who bought them figuring to make good money based on how much return a home loan makes, and because they were viewed as safe investments. That's just as big a part of the problem as well, and the investors didn't necessarily do anything wrong themselves, since the quality of investment they were buying into was misrepresented. Of course, sometimes the investment companies DID know they were buying what were essentially junk bonds, but did it anyway because the short term returns were great, and they were so convinced of their own ability to read the market, that they figured they were invincible.

The problem is, you simply just can't let the entire thing collapse and implode as it would do naturally, unless you really want to have another Great Depression on our hands. Not only would you have all the financial companies go under, no one would be able to borrow money hardly at all, meaning more businesses unrelated to the mess would go under, plus all the associated industries, like home builders, real estate agents, etc. Not to mention, if our economy collapses, much of the rest of the world will also go under, and given how interconnected and interdependent the global economy has gotten these days, you're talking a worldwide economic crash.

We haven't had unregulated capitalism in this country since the turn of the century, when we enacted anti-monopoly laws. The Great Depression brought new regulations, and things like the Security and Exchange commission, to stop corporate abuses and malfeasance which were in many ways directly responsible FOR the Great Depression. This included such onerous and awful restrictions as requiring public companies to issue quarterly reports that were actually accurate. No one is arguing we should be going into a completely state-run economy or anything like that, but SOME control, if only to force companies to be HONEST and not lie to people seems reasonable, don't you think?

-Arlos

[Evermore]

see but you are asking a non functional entity to basically watch dog another non functional entity. you will never convince me we need more government controls because the truth is we need much LESS government. the situation back when these laws were enacted is much different then it is now. for instance they didnt have the currently crippling trade defacit we have not nor was there a president in power who actually is enabling this to get worse. AMerica wasnt selling off large portions of its infrastructure to foreign investers either. Do I want to see a economic collapse? no but look at it like this. YOu can only put so much shit into a toilet before you either have to flush or it overflows. the toilet is about to overflow. you really believe these idiots are going to make anything better?

[Evermore]

There are also those that were blatantly lied to.

How does one lie to an educated consumer and get away with it?

[Kramer]

exactly.

[Tikker]

There are also those that were blatantly lied to.

How does one lie to an educated consumer and get away with it?

you be convincing?

it happens all the time, and it's not like you can always be 100% researched and know absolutely everything

[Evermore]

it does happen all the time but to uneducated consumers. No you cant know everythign but you can know enough to make you question.

[Kramer]

and even if you do get taken advantage, get proof, take them to court, the federal government is not repsonsible to make sure you are taken care of..... OR.... just learn from your mistake.


if you are taking a loan for the amount of a home, hopefully you would talk with people and find out what the hell you are doing.

[Eziekial]

Fraud is against the law. Why would you need a law or regulation to make something illegal, illegal?

This is what's wrong with this country. We are looking for a solution to a problem that already has a solution we don't like. It's like playing a game and the players keep changing the rules when they want to get their way.

The rules of mortgage lending have been in place for a long time and little has changed except all of a sudden there was a huge run in that sector. Lots of people jumped into a house trying to get rich quick and that pushed prices higher, made people lots of money, forced more houses to be built... etc. That's just the nature of a market. If demand rises, prices go up then (unless hindered by some external force) supply is created to meet that demand and prices come back down. People try to "time" the market everywhere and some do well but most get burned. Live with it.

[Tikker]

the main issue seems to be that people feel the need to keep up with the jones's, or in some cases, to try and pass the jones' when they do not really have the means to do so


it just seems like there's so few people these days that know how to save, and then buy shit when they can afford it