Proposed Market Regulatory Reform Irrelevant & Dangerous

If you're wondering how Treasury Sec. Henry Paulson came out so quickly with detailed proposals for a complete consolidation and overhaul of the five gummint agencies now responsible for oversight of various sectors of our financial system, you haven't done the homework I assigned -- watching the Naomi Klein interview embedded in my earlier posts and (here and here).

Senator Chris Dodd (D) might be wondering, too -- he's Chairman of the Senate Banking Committee, and no one consulted him about the proposals.

Reuters reports, Dodd "said he welcomed the plan offered by . . . Paulson, but questioned its relevance in addressing falling home prices, rising foreclosures and the imminent threat of recession. . . . [Overhauling the regulatory system] 'doesn't relate to the issues we're grappling with,' Dodd said on a conference call. 'The failure of the administration to utilize the tools they've been given over the years . . . . That's the problem, not reorganization.'

" . . . Paulson on Monday issued a sweeping plan that calls for giving the Federal Reserve more authority over Wall Street . . . . Although the plan has been under development for many months, Dodd said he had not been asked for input on it. Noting that some of the ideas in the Paulson plan have been under discussion for years, Dodd said reorganizing the government was not the problem." More here.

I.e., in my view, the problem is not that the Federal Reserve needs more power, but that we've eviscerated the protections put in place after the market crash of 1929: the enforcement capabilities of bank regulators and the SEC, S&L regulation, and the Glass-Steagall Act.

The Wall Street Journal reports, "'It reads like amateur hour and it's because none of those guys ever worked in a regulated, chartered bank,' said Camden Fine, president and chief executive of the Independent Community Bankers of America . . . . 'A bunch of guys from Wall Street decided this was going to be their proposal.' . . . Large financial-services companies have had a seat at the table as Treasury crafted its plan . . . . " More here.

Others reviewing the details of the plan are even more concerned. Mike Whitney writes that, though the proposals are being billed "as a 'massive shakeup of US financial market regulation,' . . . [we should not] be deceived. [They] are neither 'timely' nor 'thoughtful' . . . . In fact, it's all just more of the same free market 'we can police ourselves' mumbo-jumbo that got us into this mess in the first place. The real objective of Paulson's so-called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. . . . "

"If Paulson's plan is approved in its present form, Congress will have even less control over the financial system than it does now, and the same group of self-serving banking mandarins who created the biggest equity bubble in history will be able to administer the markets however they choose without the annoyance of government supervision. That's exactly what Treasury Secretary and his pals at the Fed want; unlimited power with no accountability." More here; see also The New York Times.