Commentary by Susan Antilla
April 1 (Bloomberg) -- Seriously, it wasn't an April Fool's Day joke.
Treasury Secretary Henry Paulson presented his plan for regulatory revolution in Washington yesterday, releasing a 212- page ``Blueprint For a Modernized Financial Regulatory Structure.'' After the biggest financial meltdown since your great-grandfather stood in bread lines, Paulson mostly proposed that the markets be less regulated.
Depending upon which broadcast/print/Internet outlet you use to get your news, you might have thought that just the opposite had happened. Words like ``sweeping'' are, well, sweeping the coverage. Promises of the biggest changes ``since the Great Depression'' are peppering the commentary.
And maybe all of that is so. The problem, though, is that this big historical change is such a gift to Wall Street that its leaders can barely contain their glee. The overhaul proposals amount to a ``thoughtful and sweeping plan,'' said Tim Ryan, president of the Securities Industry and Financial Markets Association, or Sifma, in a statement Friday, when a draft of the report began to circulate. Sifma ``intends to be an important player'' in the multiyear process of modernizing the U.S. regulatory system, the statement said.
It's no surprise that Sifma is making itself heard. Sifma and other financial-industry lobbyists have been sharing their proposals on how to fix the U.S. regulatory system since last fall, when the Treasury Department sought comments on the subject.
Into the Abyss
Considering the mess the industry has gotten us into, you would think Paulson's final product might incorporate ideas from those who warned that we were headed into the abyss, not the players who helped push us over the edge.
Yet the final product reads like a very early Christmas gift to the people who run hedge funds, brokerage firms and private equity funds. The financial industry put together its wish list in letters to Treasury in November, and Santa Paulson delivered.
Sifma, for example, recommended in a letter on Nov. 21 that the Securities and Exchange Commission merge with the Commodity Futures Trading Commission, and that the merged entity follow the ``principles-based'' regulatory approach favored by the CFTC. (Wall Street can't get enough of this principles approach, in which mushy concepts such as ``management responsibilities'' and ``prudential supervision and enforcement'' are pushed.)
Presto, Paulson yesterday suggested both the SEC/CFTC merger and a shift to ``principles'' in U.S. regulation.
Cozy Up
The Financial Services Roundtable, a lobbying group of leaders at 100 large financial companies that also backs the principles idea, called for ``optional chartering,'' which would let national insurance companies opt out of state regulation in favor of federal oversight. Yesterday, Paulson proposed an ``optional federal charter'' in his speech. The Roundtable said that it applauded Paulson. And why shouldn't it?
It's all so cozy that the Managed Funds Association -- a lobbying group for hedge funds --- wrote to Treasury that its version of principles-based regulation would encourage a ``cooperative, not combative'' relationship between business and regulators. Don't you just have visions of Steve Schwarzman and Ben Bernanke bursting into a verse of ``Kumbaya?''
Financial companies weren't the only entities to relay their thoughts to the Treasury Department about how to go about a regulatory overhaul. Among those who wrote, though, they appear to have been the most successful at getting what they wanted. Consider the feedback that Treasury received from the Consumer Federation of America, a Washington-based lobbying group whose ideas were invisible in the final report.
More Breaks
CFA sent a proposal to Treasury asking that the regulatory process be more independent of the institutions being regulated and that there be a ``meaningful redress mechanism'' for consumers who were victims of fraud or deceit. The Treasury blueprint proposed the opposite.
Paulson's proposal would give the industry even more leeway to police itself, including making it easier for self-regulatory organizations such as the Financial Industry Regulatory Authority (Finra) to change or create rules without soliciting public comment or getting SEC approval. It also seeks to use self-regulation in new areas, recommending that financial advisers, who are now overseen directly by the SEC, regulate themselves just like brokers do.
Paulson didn't address the issue of consumers with complaints about fraud, but he almost didn't have to. Apart from Treasury's plan to better regulate the mortgage business, the philosophy behind the report was one of streamlining regulations in a way that would benefit the financial industry, not consumers.
No Lawsuits
The financial industry has provided its feedback on redress, though. In its November letter to Treasury, Sifma said that while it was pushing for a principles-based system, it would want to be sure that any change wouldn't ``increase the litigation risk experienced by financial firms.'' New principles to follow, but no lawsuits when you ignore them.
Critics aren't confident that Paulson's blueprint has what it takes to help regulators tackle problems before they become crises. Barbara Roper, director of investor protection at CFA, says she agrees with Paulson on one matter: today's financial crisis wasn't caused by a flawed regulatory structure. It was, she says, the result of ``regulators whose mindless belief that the market is always right made them deaf to warnings of risks'' and blind to the risks that securitization was spreading all over the place, not reducing them.
Paulson told us that we need a strong financial system for ``working Americans.'' Yet his focus is on helping firms like Goldman Sachs Group Inc., the one he used to run, have an easier time of it. When is the public going to say that enough is enough?
(Susan Antilla is a columnist for Bloomberg News. The opinions expressed are her own.)
To contact the writer of this column: Susan Antilla in New York at santilla@bloomberg.net
Last Updated: April 1, 2008 00:01 EDTSource: http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_antilla&sid=az0GuS.t1g3o