Remember That Financial Crisis?

Remember that whole financial crisis?

This summer has been dominated by the raging debate over health care reform. Any discussion about the financial sector has usually focused on the surging stock market, with the Dow on Thursday surpassing the 9,000 mark for the first time since January. All things considered, it's easy to see why the Obama administration's proposed financial regulatory overhaul has been relegated to the back seat.

But today the sweeping measures to revamp the financial system in the wake of the worst financial crisis since the Great Depression are once again taking center stage on Capitol Hill. Treasury Secretary Tim Geithner, Federal Reserve chief Ben Bernanke, and FDIC chair Sheila Bair, among others, are testifying on the measures before the House Financial Services committee.

"These proposals were designed to lay the foundation for a safer, more stable financial system, one less vulnerable to booms and busts, less vulnerable to fraud and manipulation," Geithner said. "The president decided we need to move quickly while the memory of the searing damage caused by this crisis was still fresh and before the impetus for reform faded. These proposals have led to an important debate about how best to reform the system, how to achieve a better balance between innovation and stability. We welcome this debate."

There is plenty to debate. The administration's proposals are extensive. A consumer protection agency to fight for consumer's rights and interests. New oversight duties for the Fed to monitor systemic risks to the system. Resolution authority for the government to wind down large, failing firms whose failure would threaten the overall economy. And that's just the tip of the iceberg. But not only have the administration's reforms been overshadowed, they have also been blasted by the financial industry and Republicans.

"When you have the wrong diagnosis, you will in turn offer the wrong remedy and that is exactly the case with the administration's proposals before us," said Rep. Jeb Hensarling, R-Texas. "Our economic turmoil has not arisen from deregulation, but more so from dumb regulation."

One especially contentious proposal is the administration's push to establish a consumer protection agency.

"The legislation will stifle innovation," warned Hensarling, echoing concerns voiced by the financial industry that has lobbied hard against the proposal. In the past, the Texan has cautioned that if such an agency had been around two decades ago, debit cards would not even exist today.

Responded the panel's chairman Barney Frank, D-Mass.: "The notion that the existing institutional structure protects consumers adequately, I think, is a mistake."

Even key policymakers themselves cannot agree on the plan: Bernanke wants consumer protection responsibilities to remain with the central bank, putting him at odds with the administration's proposal.

The Fed chief, though, already has his hands full trying to fight for the Fed becoming the chief regulator in charge of overseeing systemic risks to the economy. Lawmakers on both sides of the aisle have weighed in with their fears about any increase in the Fed's powers after the central bank failed in the years leading up to the current crisis.

"I must reiterate my deep and profound concerns about the selection of the Federal Reserve as the primary entity in charge of systemic risk," Rep. Paul Kanjorski, D-Pa., said.

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