WASHINGTON (Reuters) – Treasury Secretary Henry Paulson will reveal in full sweeping new plans on Monday for streamlining a hodgepodge of regulation faulted for permitting the U.S. mortgage crisis to balloon into a full-blown economic threat.
Keenly aware of the political debate already mounting as soaring home foreclosures push the economy toward recession, the Bush administration allowed the veil to be lifted on key measures before Paulson’s announcement at 10:00 a.m. EDT.
The regulatory blueprint proposes vesting new powers as a “market stability regulator” in the Federal Reserve — effectively formalizing a role it already has been performing by providing liquidity to investment banks and lowering official interest rates.
It would give the U.S. central bank authority to demand that all financial system participants supply it with full information on their activities and grant the Fed a right to collaborate with other regulators in setting rules for their behavior.
Since problems surfaced last August with rising failure rates on subprime mortgage loans to less credit-worthy borrowers, credit markets have come near seizure several times. And public anger has mounted at what was perceived as slack enforcement of existing rules.
Many mortgage loans were made without basic fact-checking. Some did not even verify whether borrowers actually earned the incomes they claimed or whether they were steered into inappropriate loans with low initial “teaser” rates that soon reset at higher rates requiring much larger monthly payments.
Treasury acknowledged in draft proposals that the current regulatory system is full of “regulatory gaps as well as redundancies.” It sets out an ambitious schedule for modifying and simplifying it — one that has little chance of being enacted in President George W. Bush’s remaining 10 months.