A certain chutzpah

U.S. Treasury Secretary Henry Paulson plans Monday to call for sweeping structural changes in the way the government monitors financial markets, capping a broad review aimed at revamping a system of regulatory oversight built piecemeal since the Civil War.

If even only some of the changes get made, they would represent a major reworking of the U.S. regulatory system for finance. Such an outcome would likely take years and would also require major compromises from an increasingly partisan Congress.

Opposition is already emerging from critics who feel the document nods too far toward deregulation. The revamp process began early last year before the credit crunch and was initially aimed at improving American competitiveness. As such, it's a hybrid that both adds new rules to deal with recent financial woes but also simplifies old structures in a way that favors some in the finance industry.

"It takes a certain chutzpah to say the appropriate response to a financial crisis is to loosen regulation," said Barbara Roper of the Consumer Federation of America, a consumer advocacy group. "Wall Street generally looks to me like they didn't get hit with anything they don't want."

The proposal will also trigger messy feuds over turf at a time when confidence in government supervision is low. On Friday -- hours before the Treasury document became public --John Reich, head of the Office of Thrift Supervision, which regulates federal savings and loans, or thrifts, sent a memo to employees stating: "Many of you might be wondering whether financial services restructuring is an idea whose time has finally come. I don't think so." Under the plan, OTS would be merged out of existence. (See an internal memo from the OTS director.)

Sweeping Changes in Paulson Plan (Wall Street Journal, 30 March 2008)