The Plan To Repair Financial Regulations Garners Mixed Reactions
Monday, March 31, 2008SUZANNE PRATT: Treasury Secretary Henry Paulson today laid out plans for a sweeping overhaul of the nation's system of financial regulation. Calling the proposal an aspirational model, Paulson said it would take two to eight years for some of the measures to be implemented. Under the blueprint, the Federal Reserve would oversee market stability, with the authority to probe risks across markets. A new Federal mortgage commission would set standards for mortgage brokers and the plan would also bring insurance companies under Federal regulation.
We have two reports tonight analyzing the administration's proposal and taking a look at early feedback on the plan. We begin with Darren Gersh in Washington.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Speaking in the ornate cash room where clerks once weighed out gold and silver, Treasury Secretary Henry Paulson suggested doing away with regulatory offices that in some cases date back to the civil war. But Paulson cautioned his reforms would not stop the cycle of boom and bust followed by financial distress.
HENRY PAULSON, TREASURY SECRETARY: I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible, one that can better adapt to change.
GERSH: The first question indicated how hard reform can be. Former Congressman Dan Mica now represents credit unions. He asked Paulson why the Treasury wanted to put them out of business, which he says is what would happen if credit union regulators are combined with bigger, more powerful bank regulators.
DAN MICA, CEO, CREDIT UNION NATIONAL ASSOCIATION: The banks, in essence, have opposed credit unions in any expansion, any existence for as long as we've been around, since the early 1900s. It would be a lot like putting the chickens under the guardianship of the fox.
GERSH: Paulson said he isn't trying to put anyone out of business. But the question shows why regulatory fights are the toughest in town. And by proposing Federal regulation of insurance, Paulson has stepped into a heavyweight bout. The blueprint calls state insurance regulation inefficient, but Bob Rusbuldt, who represents independent insurance agents, says the current system needs a tune up, not an overhaul.
BOB RUSBULDT, CEO, INDEPENDENT INSURANCE AGENTS OF AMERICA: You look at the whole sub-prime mortgage problem we have now. That was under the watch of Federal regulators. So why they want to take a system that has worked well for consumers and policyholders for years and transfer it to the Federal government is counter-intuitive.
GERSH: At the U.S. Chamber of Commerce, David Hirschmann argues back streamlining regulation is critical to keeping U.S. financial markets competitive.
DAVID HIRSCHMANN, CTR. FOR CAPITAL MARKETS, U.S. CHAMBER OF COMMERCE: I think the answer today is to no longer to simply try to patch over our regulatory structure. It's really to modernize and simplify the entire regulatory structure. Band Aids won't do any longer.
GERSH: The Treasury blueprint would also merge the Securities and Exchange Commission with futures regulators, transferring investor protection duties to a new regulator of financial products. That concerns former SEC Commissioner Annette Nazareth, though she called the overall blueprint a good first step.
ANNETTE NAZARETH, FORMER SEC COMMISSIONER: The more important issue is do investors have equal protection whether a product is sold by a bank, an insurance company or an investment bank? The answer should be yes. I think today the answer is not necessarily.
GERSH: Key Democrats were less than encouraging. Senate Banking Committee Chairman Chris Dodd called the Paulson blueprint a wild pitch. Instead of focusing on long-run reforms, Dodd said the administration should be addressing the immediate pain of the foreclosure crisis. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Erika Miller in New York. Treasury Secretary Henry Paulson's plan to better police Wall Street was met with yawns by many professional investors. Money manager Mike Holland does not expect changes in the way the Street does business anytime soon.
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: There's no reason for any of the viewers to get excited about it or nervous about it or positive about it because nothing is going to happen in a presidential election year. Politicians are going to stay away from doing anything of any significance.
MILLER: But many top executives at major brokerage firms, including Tom James, the CEO of Raymond James, say reform is long overdue.
THOMAS JAMES, CEO, RAYMOND JAMES FINANCIAL: I thought they identified all the appropriate issues and they responded to a lot of the problems and they tried to adapt some of the rules. For example, the merger of the regulators for our savings and loans and for our banks, that's pretty politically difficult to deal with. But the fact is, in today's world, probably a sound recommendation.
MILLER: Portfolio manager Jim Awad thinks the best part of the plan is expanding the Federal Reserve's power.
JAMES AWAD, CHAIRMAN, W.P. STEWART ASSET MANAGEMENT: From a Wall Street perspective, what it does is it centralizes a lot of the new authority with the Federal Reserve, which is highly respected, intellectually and in practice and is really the least political of the government institutions.
MILLER: At the New York Stock Exchange, veteran floor trader Ted Weisberg says restructuring oversight should help encourage investment in U.S. securities.
THEODORE WEISBERG, PRESIDENT, SEAPORT SECURITIES: I think hopefully with some direction from smarter people than a lot of the mortals that run around the floor of the New York Stock Exchange every day, that will bring some clarity and therefore some confidence back to the financial markets, which clearly we need.
MILLER: Experts say part of the reason financial markets didn't react much to the proposal is the expectation that it will undergo a major overhaul by Congress.
HOLLAND: I think at the end of the process here, a couple of years from now we'll probably end up with something that's somewhat more efficient. But I think at the end of the process we'll have a much changed product than we have right now, simply because of the political reality.
MILLER: Experts say the reform plan will likely be only a momentary focus on Wall Street. They predict that by tomorrow, investors will turn their attention back to more immediate concerns like housing, recession and quarterly earnings. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
