Sweeping Fed Plan Sparks Intense Debate

Democrats Charge Treasury Secretary's Suggested Financial Overhaul Does Not Go Far Enough

(CBS/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. He declared that a strong financial system was important not just for Wall Street but also for working Americans.

Wall Street historian Charles Geisst told CBS News correspondent Anthony Mason there is widespread agreement that the regulatory system created in the 1930s is an antique.

"Does this proposal address what's happened?" Mason asked.

"It addresses it after the fact," Geisst said. "And I think maybe after the fact is no longer good enough. That's what most people are telling us."

The administration's plan was already drawing criticism from Democrats that it does not go far enough to deal with abuses in mortgage lending and securities trading that were exposed by the current credit crisis.

Presidential candidate Hillary Rodham Clinton on Monday criticized the plan, saying the proposal "comes late and falls short."

The New York senator said the government must move more assertively to contain the mortgage and credit crisis rattling financial markets, especially in finding ways to ease soaring rates of home foreclosures.

"No amount of rearranging the deck chairs can hide the fact that our housing and credit markets are in crisis, and they're sinking deeper every day," Clinton said at a campaign appearance. "Every day we fail to take aggressive action is a day lost."

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 Mr. 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."

Banking groups raised strong objections to the plan while other industry groups had mixed reactions.

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

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.

"We need to be clear what it won't do," CBS News correspondent Anthony Mason told The Early Show. "It could streamline the system, that's what it's about. The markets will like this because as one economist said to me, this is the 'go-easy on Wall Street plan.'"

Mason added, "There's not a lot of new regulation here."

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.

CBS News correspondent Kimberly Dozier reports this plan may not be enough to satisfy lawmakers on Capitol Hill who have to sign off on it - and many of them are already hard at work on their own proposals, which would impose a lot more new regulation.

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said in an appearance on CBS News' The 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.

[suziee100]

We are looking slightly controlled I guess but because of the financial crisis and someone had to bail us out, so the governments' had no choice really but to take control.

100-mortgage.com

[killtheliars]

so basically they want to take even more power away frm elected officials and place that power in the hands of a non-governmental body called the FED, which is owned by many of the same people who own our largest corporations amd banks. Sure makes alot of sense to me.

[pepperwood2]

Hillary says it comes late & falls short so we''re better off doing nothing I guess, Just send her & Mrs. Williams the money!

Somebody tell how this Liberal Congress is going to do anything that will benefit Mr. & Mrs. America?

The oil corportations are the largest contributers to the Clinton Campaign & Liberal Congress. Why do you think that Hillary will not release her 2000 - 2007 income tax statements? What happened to that excessive profit tax on Oil that was sent to the House?

I know , I know Duhhhhh why duh oil companies will raise their prices on gas, heating oil, etc. to pay for it.. WHAT do you think they been doing all along & laughing all the way to the bank about the excessive profits they''ve been making. Especially during these time when most of us & the world have been suffering through natural diseasters, wars, diseases, famines & Global Warming.

Hillary & the Liberal Congress may adore receiving Large Corporate Donations they get but out here in the real world it is time for Congress to get back to doing the work of the American People.

[joyous88]

apprxAm,

who you talking about?

they are called repiubliCons, criminals

anti american conservatives driven by greed

[joyous88]

sweeping fed bailout for the wall street wealthy;

the king of saudi arabia owns 80% of all bear/sterns stock, he got the bail out.

this administration is criminal

republicon are duped fools, stooges of the wealthy

[apprxam]

It is amazing how with one hand Liberterrorist are begging for money to cover the a** of Bear Stern and their stockholders and still they cry the call of "no regulation" and "socialism", if congress goes too far. The gall and gumption on those guys.

[apprxam]

R. Steel, Under Sec of Tres. has been using the "new" Bush/Libertarian/Consevative talking point brace phrase..."A year ago". With no apparent solution just last week regarding the collaspe of Bear Stern, Mr. Steel, and I assume, his ilk, will shovel to the American people the lie that this re-alignment has been on the drawing board for at least a year. This, I fear, is the way they are not only going to push this JP Morgan welfare check of 29 billion dollars of the public''s tab, but they are also consolidating five federal agencies under the purview of the Fed. Res., but continuing the Supreme Court''s assult on states oversight on usary rates, insurance regulation by the several states is to be federalized. Bush v. Gore wasn''t the last time that "the right of the state was ignored by this administration.

[billpl-2009]

Sweep out the White House before Wall Street

...don''t trust that idiot further than I can ****

[kansas1946]

I think something needs to be done, and some controls need to be in place to prevent the kind of lending practices that have gone on for the last few years, but I think we just need to wait until someone else is in the Whitehouse. I have no faith in anything coming out of the Bush Whitehouse. We can probably live without any legislation until next January. Bush just needs to address the current mess and try to ease the damage that was caused on his watch.

[stevex47]

soaring truth (just kidding of course), Where the heck have you been? Glad your back, did CBS filter you? Those guys are too tight, ha. :)