Bush-Paulson financial plan gets panned
The administration's plan to consolidate financial regulators seems OK as far as it goes. But it doesn't seem to go very far.
Business Week economist Michael Mandel:
Let’s see. In the middle of perhaps the greatest financial upheaval since the Great Depression, Treasury Secretary Hank Paulson is proposing a change in financial regulations which basically amounts to a big wink to Wall Street. His plan will go nowhere, both for political and practical reasons. In fact, it does not even meet the minimum standard of improving transparency, which would reduce the possibility of a similar crisis in the future.The main point of the Paulson plan is to make regulation more efficient.
NYT columnist/economist Paul Krugman:
Anyone who has worked in a large organization — or, for that matter, reads the comic strip “Dilbert” — is familiar with the “org chart” strategy. To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes and lines that say who reports to whom.You now understand the principle behind the Bush administration’s new proposal for financial reform, which will be formally announced today: it’s all about creating the appearance of responding to the current crisis, without actually doing anything substantive.
You can be sure that in order to justify their existence, the reorganized agencies, as well as such new ones as the MOC and OIO, will issue a plethora of new regulations that will have the net effect of constricting credit for the average person, because the underlying judgment of frowning officialdom is that the cause of the current housing crisis is how easy financiers made it for ordinary people who had the audacity to want to purchase homes. By contrast, the plan would assure that such “innovations” as those by which the lenders themselves have been famously packaging and re-selling mortgages and other debt instruments as investment securities will continue unimpeded.
We’re going to have a lot to say about the costs of Treasury Secretary Hank Paulson’s Blueprint for a Modernized Financial Regulatory Structure. Before that, however, it’s worth noting that there is little to admire about our current financial regulatory structure. Largely a product of the financial crises of the past, the structure was unwieldy, arguably created a bureaucratic structure at odds with the constitutional framework of our Republic and tended to serve the interest of the very financial institutions it sought to regulate at the expense of individual investors and the broader public.
It’s being called the broadest overhaul of Wall Street regulation since the Great Depression. But look closely at the proposal announced this morning by Treasury chief Hank Paulson, and you’ll find a thin veneer of regulatory filagree -- designed to appease a public outraged by the mismanagement of its savings and the taxpayer-financed bailout of Wall Street’s well-padded executives, but also, sadly, designed to accomplish just about nothing.
This is only a first step in the process. Many government agencies will be merged to create even more powerful agencies. However, the key element that stands out in Secretary Paulson's proposal is the new role of the Federal Reserve as a regulatory "Supercop." In essence, the proposal makes the Fed formally responsible for the risk management of our financial system. This would be the third mandate for the Federal Reserve after price stability and full employment.
