Treasury Secretary Henry Paulson proposed the broadest overhaul of U.S. financial regulation since the Great Depression, saying the system for overseeing American capitalism needs to be better prepared for "inevitable market disruptions."
"Our major financial services companies are becoming larger, more complex and more difficult to manage," Paulson said in remarks at the Treasury in Washington. "The real threat to market stability is below ground, at the root level where the health of financial firms is intertwined." [...]
The Treasury recommended that the Fed share authority over banks, securities firms and insurers in monitoring corporate disclosures, writing rules and stepping in to prevent economic crisis.
"To do its job as the market stability regulator, the Fed would have to be able to evaluate the capital, liquidity and margin practices across the financial system and their potential impact on overall financial stability," Paulson said. [...]
"The Fed would have the authority to go wherever in the system it thinks it needs to go for a deeper look to preserve stability," Paulson said.
"The Fed will collect information from commercial banks, investment banks, insurance companies, hedge funds, commodity- pool operators,'' he added. "Rather than focus on the health of the particular organization, it will focus on whether a firm's or industry's practices threaten overall financial stability."
A good idea? I rather doubt it. Aside from the merits (and lack thereof) of this particular case, the American track record of ambulance-chasing bureaucratic and regulatory overhauls is not a very pretty sight. See, for example, Brian Doherty on Sarbanes-Oxely in January 2006, James Bovard on post-9/11 airline security in February 2004, and Julian Sanchez on the PATRIOT Act in July 2005. We will be hearing a lot in the coming months about how "complexity" needs to reined in by sober-minded government managers.
In an unrelated story, Housing and Urban Development Secretary Alphonso Jackson is reportedly stepping down amid criminal allegations that he awarded federal contracts to his pals.