As Treasury Secretary Henry Paulson formally laid out an ambitious plan to overhaul the regulatory apparatus that oversees the nation's...
WASHINGTON — As Treasury Secretary Henry Paulson formally laid out an ambitious plan to overhaul the regulatory apparatus that oversees the nation’s financial system, senior lawmakers and lobbyists from industries opposed to the plan predicted most of it would be dead on arrival.
While the plan promotes a long-term goal of reducing an alphabet soup of regulatory agencies, in the shorter run it may do the opposite.
One of the blueprint’s few short-term goals is to create a mortgage commission that would set new minimum standards for mortgage brokers and otherwise unregulated financial institutions that sell mortgages.
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The new commission could be formed only by Congress, and some lawmakers predicted it might be adopted this year.
Officials said that, as part of the Paulson plan, President Bush was preparing to issue an executive order soon to expand the membership and reach of an interagency committee called the President’s Working Group on Financial Markets.
The group was created after the stock market plummeted in 1987.
It is also expected to consider ways to broaden the authority of the Federal Reserve to lend money to non-banks as needs arise.
The Working Group, headed by the Treasury secretary, consists of the top officials from the Fed, the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Under the proposal, it would be enlarged to include the heads of other agencies, including the Office of Thrift Supervision, which the plan proposes eventually to abolish.
Swift action unlikely
But other than those relatively modest provisions, most parts of the plan are not likely to be adopted soon, if at all. A congressional election year seldom favors complex pieces of legislation.
Key lawmakers have signaled that they want to take their time in weighing ideas for broad changes.
They are already hearing from state regulators and consumer groups who say the proposal would do little to curb risky behavior by financial institutions, and from industry groups that say it goes too far.
The plan, produced by a lame-duck Republican administration facing a Democratic Congress, would drastically expand the Fed’s authority to oversee financial markets.
It would consolidate federal agencies that regulate the nation’s securities and commodities futures markets.
And it would allow insurance companies, which have long been regulated by the states, to choose instead to have a national charter and be supervised by a new federal agency under the Treasury Department.
Paulson said Monday he did not expect the bulk of the plan to be adopted during the current administration — and he said Congress should not consider adopting most of it until after the housing and credit crisis ended.
Senior lawmakers, while praising the administration for raising important points for further discussion, said the odds were long for a major overhaul before Congress all but shuts down for the elections in the fall.
“Since this is opening day in baseball, I might as well make a baseball metaphor,” said Sen. Christopher Dodd, D-Conn., who heads the Senate Banking Committee. “This is a wild pitch. It is not even close to the strike zone.”
Dodd and Sen. Harry Reid, D-Nev., the majority leader, said they instead were hoping to quickly move legislation that would help homeowners facing higher mortgage rates and foreclosure.
The Democrats’ bill would provide $200 million more for counseling for homeowners in danger of foreclosure, would authorize $10 billion in bonding authority for housing-finance agencies to refinance subprime loans, and would provide $4 billion for local governments to purchase foreclosed properties.
The bill would also change the bankruptcy laws to allow judges to modify mortgages on primary homes, a provision opposed by Republicans who say it will only increase mortgage rates.
“In time, we will hold hearings on reorganizing the regulatory structure,” Dodd said.
Concerns about Fed
In a statement later, Dodd indicated he had reservations about the plan’s proposal to expand the Federal Reserve’s authority.
“On the one hand, it would allow the Fed to examine all financial companies — not just banks — to be sure they are not posing a risk to the overall financial system,” Dodd said.
“On the other hand, it fails to realize that the Fed helped create this crisis by ignoring the red flags as far back as five years ago. It does not make sense to give a bigger shovel to the very people who helped dig us into this hole.”