Reuters - Treasury pitches regulatory overhaul

This article was sent to you from Bombastic4000@gmail.com, who uses Reuters Mobile Site to get news and information on the go. To access Reuters on your mobile phone, go to:
http://mobile.reuters.com

Treasury pitches regulatory overhaul

Monday, Mar 31, 2008 3:59PM UTC

By David Lawder and Mark Felsenthal

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson revealed sweeping plans on Monday for streamlining a hodgepodge of regulations that are blamed for allowing the U.S. mortgage crisis to balloon into a full-blown economic threat.

The proposals, in the form of a 218-page "blueprint" that was started before markets unraveled last August, offer no quick fix for the credit contraction that threatens to tip the U.S. economy into recession.

Paulson acknowledged that most of the proposals would not be enacted until after the current troubles had passed, perhaps long after President George W. Bush leaves office next January. The plan is expected to meet stiff resistance from Capitol Hill, within the financial sector and from competing corners of the government bureaucracy.

The regulatory blueprint proposes eventually vesting new powers in the Federal Reserve as a "market stability regulator" -- effectively formalizing a role the central bank already has started to perform recently by expanding the list of financial firms who can borrow directly.

It would give the Fed authority to demand that all financial system participants supply it with full information on their activities and grant the Fed a right to collaborate with other regulators in setting rules for their behavior.

The Bush administration has faced political pressure from critics who blame lax regulatory oversight for the mortgage mess. Paulson, a 30-year Wall Street veteran, stressed that regulation must be light enough to keep markets innovative, and said those who tried to label the blueprint as advocating more or less regulation were "oversimplifying."

The administration's proposal drew a quick reaction from Sen. Barack Obama, a Democratic presidential candidate, who told a campaign rally that Bush was "not making the regulations any tougher. He's not preventing the predatory lending that is responsible for a lot of these problems."

However, Paulson downplayed the need for more regulation, saying: "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."

"I am suggesting that we should and can have a structure that is ... more flexible, one that can better adapt to change, one that will allow us to more effectively deal with inevitable market disruptions, one that will better protect investors and consumers, and one that will enable U.S. capital markets to remain the most competitive in the world," he said.

MERGE WATCHDOGS?

Since problems surfaced last August with rising failure rates on subprime mortgage loans to less credit-worthy borrowers, credit markets have come near seizure several times. Public anger has mounted at what was perceived as slack enforcement of existing rules.

Many mortgage loans were made without basic fact-checking. Some did not even verify whether borrowers actually earned the incomes they claimed or whether they were steered into inappropriate loans with low initial "teaser" rates that soon reset at higher rates requiring much larger monthly payments.

Among changes, the Treasury wants to merge the Securities and Exchange Commission, the U.S. markets watchdog, with the Commodity Futures Trading Commission, which is charged with overseeing the activities of the nation's futures market.

It also recommends getting rid of a Depression-era charter for thrifts, which was intended to make it easier to obtain mortgage loans, saying it is no longer necessary. That would mean closing the Office of Thrift Supervision and transferring its duties to the Office of the Comptroller of the Currency, which oversees national banks.

In one important change to try to clamp down on mortgage brokers, the Treasury is urging the establishment of a "Mortgage Origination Commission" made up of regulatory agency representatives that would be able to set licensing standards for mortgage brokers.

That would boost consumer protection by increasing scrutiny of the personal conduct, disciplinary history and educational qualifications of the brokers, who are frequently the first contact for borrowers.

(Writing by Emily Kaiser and Glenn Somerville; Editing by Frank McGurty)