- The Washington Times - Wednesday, June 17, 2009

President Obama on Wednesday announced the most sweeping reforms of U.S. financial systems since the Great Depression in a move designed to avoid the kind of aggressive lending and speculation that lead to the near collapse of Wall Street.

The president blamed a “culture of irresponsibility from Wall Street to Washington to Main Street” for the economic downturn, and unveiled new transparency rules aimed to make the financial markets strong enough to withstand system-wide stress or the potential failure of one or more large financial institutions.

“An absence of oversight engendered systematic, and systemic, abuse,” said Mr. Obama during an afternoon speech at the White House. “Instead of reducing risk, the markets actually magnified risks being taken by ordinary families and large firms alike.”

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At the heart of the plan is a provision to give new powers to the Federal Reserve, already arguably the most powerful federal agency, to oversee the entire financial system.

The Fed, under the plan, would be given power to supervise financial firms deemed too big or interconnected to fail, such as American International Group Inc., a giant insurer that the Federal Reserve rescued from bankruptcy last year in a $182.5 billion taxpayer bailout.

But the Fed, which now can independently use emergency powers to bail out failing banks, would first have to obtain Treasury Department approval before extending credit to institutions in “unusual and exigent circumstances.”

The president also announced the creation of a new consumer protection agency that would place new restrictions on lenders and mortgage brokers, requiring them to offer simple loans to consumers.

While the president said that the recession was “not the result of one failure but many,” he said but accused “recklessness and greed” on Wall Street for much, if not most, of the problem.

Mr. Obama’s speech followed a late morning meeting with Treasury Secretary Timothy F. Geithner, Federal Reserve Chairman Ben Bernanke and other financial officials.

One causality of the overhaul is the elimination of the Office of Thrift Supervision, replacing it with a system aimed at closing gaps in coverage and keeping institutions from shopping for the most lenient bank regulator.

“We’ve seen that structural deficiencies allow some companies to shop for the regulator of their choice - and others, like hedge funds, to operate outside the regulatory system altogether,” the president said.

The administration’s plan received a generally cool reception from the financial and business world.

The U.S. Chamber of Commerce said it was “disappointed” with the White House plan.

“While the Administration has made several positive recommendations, were concerned that overall, the proposal simply adds to the layering of the system without addressing the underlying and fundamental problems,” said David Hirschmann, president and chief executive of the chambers Center for Capital Markets.

“We can’t simply insert new regulatory agencies and hope that we’ve covered our bases.”

But liberal groups and organized labor mostly applauded the proposals.

Anna Burger, secretary-treasurer of the Services Employees International Union, called the plan a “significant first step” toward reforming and holding financial systems accountable.

“We have seen first-hand the impact of an out-dated regulatory system that failed to curb the reckless actions of so many financial institutions,” said Ms. Burger, who also is a member of the presidents Economic Recovery Advisory Board.

But she added that the plan didn’t go far enough, and that more reform is needed in the mortgage industry.

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