WASHINGTON — The most sweeping overhaul of the nation’s financial system in seven decades has at least one thing going for it: It is occurring in the midst of a crisis, which often is the only thing that prompts Congress to act.
But the administration also has some timing factors working against it — namely that President Bush has 10 months left in office, making it easier for the powerful forces arrayed against the plan to simply run out the clock.
Even with time running out, Treasury Secretary Henry Paulson can’t be blamed for a lack of ambition in putting forward his 218-page blueprint Monday.
The plan would create three super agencies with power over the financial industry, abolishing a patchwork of overlapping jurisdictions that were created in response to the biggest financial crisis of the last century, the 1929 stock market crash and Great Depression.
The crisis this time around is a severe credit crunch that has been roiling markets since last August, resulting in billions of dollars in losses at some of the nation’s biggest financial firms.
The crisis on Wall Street is also hitting Main Streets across the country with the threat that 2 million households could lose their homes to a rising tide of mortgage defaults, further lengthening an already severe housing slump.
In the view of many business executives, Congress in its haste to pass Sarbanes-Oxley included provisions that made U.S. companies less competitive in the global economy.
Partly in response to those complaints, Paulson a year ago announced that Treasury was going to launch a review of the federal financial regulatory system, some of it dating back to the Civil War, to see how it could be modernized for the 21st century.
However, the Treasury review was overtaken by events in the form of a cascading mortgage crisis, which was blamed on lax regulation of mortgage brokers, and an exploding problem with the sale of complex financial instruments, many of them backed by subprime mortgages, that left a lot of investors with heavy losses.
That opened the door for critics of those practices to demand more regulation. The final work product is a hybrid, giving Wall Street much of what it wanted in the form of less red tape.
“This plan is very Wall Street-centered. It has very little understanding of what goes on in community banks on Main Street every day,” said Camden Fine, president of the Independent Community Bankers of America, the lobbying group for 5,000 community banks across the country.
Bush by executive order can put into effect one short-term goal, expanding the President’s Working Group on Financial Markets to include banking regulators as well as market regulators. Virtually every other suggestion will need congressional approval, meaning this issue will almost certainly be left to the next president.
