In a much-anticipated speech yesterday, Treasury Secretary Henry Paulson laid out his “blueprint” to better regulate the financial sector. Unfortunately, Paulson’s plan is nothing groundbreaking; it’s just another example of the Bush Administration’s smoke and mirrors method of reform.
Although some of Paulson’s proposals do demand more regulation of the financial structure, oversight of the most crucial areas is actually looser and more deregulatory than today’s status quo. Stock markets, for example, would be given increased ability to approve new, complicated financial products without first seeking government approval. It is these intricate transactions that are at the heart of today’s mortgage and financial crisis—and are essentially what caused the demise of investment banking giant Bear Stearns.
The Consumer Federation of America hit the nail on the head when it compared Paulson’s “response” to the mortgage and credit crises plaguing Americans to a past Administration disaster — Hurricane Katrina:
“Rolling out this plan in the middle of the current crisis is like telling Hurricane Katrina victims stranded on their rooftops in New Orleans, ‘Don’t worry, if you can hold for a few years, we’ve got a really great plan to restructure the federal emergency response system,’ ” said a statement issued by the CFA.
“This plan,” the group said, “had its genesis in Secretary Paulson’s conviction that overregulation and inefficient regulation were hurting the global competitiveness of U.S. markets. In fact, experience has repeatedly shown that regulatory failure, not overregulation, is the greatest threat to the health of our markets.”
Paul Krugman, in an op-ed, shared a similar sentiment:
And sure enough, according to the executive summary of the new administration plan, regulation will be limited to institutions that receive explicit federal guarantees — that is, institutions that are already regulated, and have not been the source of today’s problems. As for the rest, it blithely declares that “market discipline is the most effective tool to limit systemic risk.” The administration, then, has learned nothing from the current crisis. Yet it needs, as a political matter, to pretend to be doing something.
The Bush Administration has a clear record of reform over the past seven years — reforms that cater to big business, Wall Street, and the rich while masquerading those policies as helping middle class Americans.