Obama to Outline Biggest Regulatory Overhaul Since 1930s

In light of the AIG debacle, the administration wants to give the government the tools to effectively manage financial crises in the future. A central element in this effort is giving the government power to wind down large, failing companies so that they never again are faced with the "bad choices" of either providing emergency bailout money or allowing a potentially devastating financial collapse -- similar to how the FDIC can currently handle failing banks. But before it ever gets to that point for these firms, the administration wants to reduce the impact of failure by implementing more stringent capital standards among large firms and requiring prompt, corrective action if these capital levels decline.

The president will announce the plans at an East Room event at 12:50 p.m. ET Wednesday.

Even before all these measures have been unveiled, critics on Capitol Hill are already voicing their opposition. Many of the proposals will need to be passed by Congress.

"If the administration gets the wrong diagnosis, they're going to get the wrong remedy," said Rep. Jeb Hensarling, R-Texas, a member of the Congressional Oversight Panel. "The administration got the wrong diagnosis. They blame everything on de-regulation. It's not a matter of de-regulation. It's a matter of dumb regulation. And so, what the administration has essentially done is left the regulatory infrastructure and most of the regulation in place and then they add on to it. It's kind of like taking rotted wood and putting a fresh coat of paint on it -- to some extent, it doesn't solve the problem and it can make it worse by hiding flaws that lie underneath."

'When Elephants Dance, Grass Gets Trampled'

Rep. Scott Garrett, R-N.J., a member of the House Financial Services committee, said the administration's rush to financial regulatory reform was "too much, too soon" and lacked a "coherent overall strategy."

"When the administration continues to meddle and continues to have new proposals and new solutions even before they have a consensus on what the problem was, there is a lack of confidence and trust on Wall Street and Main Street that the administration knows what the heck it's doing," Garrett said. "And in the meantime, both Wall Street and Main Street is going to sit on the sidelines and not invest, you're going to see unemployment go up just because they don't have confidence in the administration that they have the right plan."

Even Democrats expressed doubts about the Fed council. Sen. Mark Warner, D-Va., used an old African proverb to argue that more power for the Fed was not the solution to systemic risk problems.

"When elephants dance, the grass gets trampled," he said Tuesday. "Well ... we've got a trampled grass problem at this point. And I don't think we can solve it with bigger elephants, whether those bigger elephants are regulators or institutions."

On Thursday, Treasury Secretary Tim Geithner will make his case to lawmakers when he goes to Capitol Hill to testify before the Senate Banking Committee and the House Financial Services Committee.

"Like all financial crises, the current crisis is a crisis of confidence and trust," Geithner and National Economic Council director Larry Summers wrote in the Washington Post Monday. "Reassuring the American people that our financial system will be better controlled is critical to our economic recovery."

"Our goal is to get it done this year," a senior administration official said Tuesday.

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