Inspection of the Administration's approaches to previous policy issues provides some instructive precedents (0), (1), (2), (3), (4) to consider in light of current policy challenges in the financial markets.
From my perspective, the common element is over-weighting ideology at the expense of expertise. The import of this observation can be gleaned from this article in Sunday's NYT:
...
On the one hand, Treasury officials say they are convinced that today's regulatory system is fragmented and out of date. The Treasury secretary, Henry M. Paulson Jr., has talked about the need to re-examine capital requirements for financial institutions.
But both President Bush and Mr. Paulson, a former chief executive of Goldman Sachs, remain philosophically opposed to restrictions and requirements that might hamper economic activity.
"What we're looking at in our blueprint is how to make our regulatory structure more efficient, less duplicative and more in line with today’s capital markets," said David G. Nason, assistant secretary of the Treasury for financial institutions. "We've got five regulatory agencies focused on depository institutions. We're one of the only countries in the world that separates securities from futures, and our regulation of insurance is solely at the state level."
But the entire discussion took a stunning turn last week after the Federal Reserve abruptly stepped in to prevent a systemic collapse on Wall Street.
Invoking its authority as the nation's lender of last resort, the Fed offered a $30 billion credit line to JPMorgan Chase to help it take over Bear Stearns, which was about to go bankrupt. Even more significant, the central bank announced that it would lend hundreds of billions of dollars to big investment banks through its "discount window" -- an emergency loan program that had been reserved strictly for commercial banks.
The Fed's involvement highlighted what many experts see as the growing disparity in regulation between Wall Street firms and commercial banks. Commercial banks submit to greater regulation, partly in exchange for the privilege of being able to borrow from the Fed’s discount window.
But starting last week, Wall Street firms were getting the same protection without subjecting themselves to additional scrutiny. Some administration officials said they had little choice but to regulate Wall Street firms more closely.
"In the short term, it would make sense to have one umbrella regulatory agency," said Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, which insures deposits at banks and thrift institutions and is one of several federal bank regulatory agencies. "Capital levels are the most important tool we have at the F.D.I.C., and investment banks have lower capital levels than commercial banks."
Among Democrats and Republicans alike, there is a growing consensus that the existing regulatory structure, involving more than half a dozen federal agencies as well state offices, were not equipped to prevent a host of questionable practices that aggravated the housing and mortgage meltdowns.
The practices included abusive loans by independent mortgage brokers; risky and opaque transactions by financial institutions; credit-rating decisions that turned out to be wildly optimistic; and the underwriting of loans by mortgage brokers that were often based on fraudulent or inaccurate information.
Just as the Sept.
