Paulson: stronger regulatory oversight of mortgage lenders

March 16, 2008 at 2:00 pm | Posted in economy USA | 1 Comment
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Treasury Secretary Henry Paulson said Thursday that a presidential working group wants stronger regulatory oversight of mortgage lenders to avert the kind of credit crisis that is dragging the economy down.

In a new Bush administration initiative that Paulson said is not about ‘finding excuses and scapegoats,’ a presidential working group set up in the wake of the 1987 stock market crash is calling for a series of actions designed to avert the kind of chilling housing and credit crunches that are threatening to throw the nation into recession — if it isn’t there already.

‘The objective here is to get the balance right — regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it,’ said Paulson, who heads the working group.

One recommendation calls for federal and state regulators to strengthen oversight of mortgage lenders and another urges state financial regulators to implement strong nationwide licensing standards for mortgage brokers, according to the group’s report, released Thursday.

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  1. Treasury Secretary Henry Paulson’s proposal to consoldiate various financial regulatory agencies is uninspired and likely will prove useless. This proposal rests on the unquestioned assumption that bad economic results should never occur, and, if they do on a large enough scale, should be bailed out. If they should be bailed out by the federal government, then the federal government rightly acquires some interest in preventing them. But consolidation alone won’t do the trick, even if these flawed assumptions about economic regulation are accepted.

    Without new rules and expanded authority–which Paulson has renounced–it’s unlikely any consolidation of the SEC, CFTC, OCC, and other regulatory agencies can yield better results than today. This is the same logic behind joining various agencies under the Department of Homeland Security, which can accomplish little more than these agencies could in the past without broader authority, racial profiling, and increased border infrastructure. The case for consolidation is even less compelling in the case of finanical regulators, as poor inter-agency communication is widely reputed to be one factor in the unsuccessful prevention of the 9/11 attacks. By contrast, no one thinks that the current mortgage crisis is the result of some regulatory gaps or bad communication between the agencies. Rather, investment banks, hedge funds, and other unregulated organizations now control huge amounts of the lending going on today.


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