Feds Trying to Save Market From Itself
Proposed plan would create more government oversight of investment firms.
WASHINGTON, March 29, 2008— -- Treasury Secretary Henry Paulson will announce a plan on Monday to give the Federal Reserve sweeping new powers, the Bush administration said today.
"Treasury will soon release a Blueprint for Regulatory Reform that proposes a financial regulatory framework which we believe will more effectively promote orderly markets and foster financial sector innovation and competitiveness," Paulson said earlier this week.
According to a summary of the plan obtained by ABC News, it would seek to stabilize the slumping housing and banking markets by:
"Under this new regulatory structure, the securities companies will have to provide the federal reserve with the same kind of information the banks do," University of Maryland School of Business professor Peter Morici said.
The government's oversight of the economy has come a long way since Alexander Hamilton headed the first Treasury Department, and administration officials acknowledge that changes this broad aren't likely to pass this year. That would leave it to the next president to decide just how far these changes go.
Paulson has been working on the plan for a year, but it responds to a housing crisis that has worsened deeply during that time. Up to 2 million homeowners are expected to go into foreclosure this year.
The plan also follows the near-collapse of Bear Stearns, once the nation's fifth-largest investment bank and one of the most storied investment firms on Wall Street, which required a federal rescue.
When the Fed bailed the company out earlier this month, regulators said the company's fall wasn't their fault because they had no power to monitor its finances or force it to make safer investments.
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