Bloomberg has the details:
"President Barack Obama said his plan to refashion supervision of the U.S. financial system is needed to fix lapses in oversight and excessive risk taking that helped push the economy into a prolonged recession.
The proposal, much of which will be subject to approval by Congress, sets out the biggest overhaul of market rules in more than seven decades, adding an additional layer of regulation for the biggest firms. It would create an agency for monitoring consumer financial products, make the Federal Reserve the overseer of companies deemed too big to fail, and bring hedge and private equity funds under federal scrutiny.
“This was a failure of the entire system,” Obama said at a White House event that included the leaders of the Treasury, the Fed and other regulatory agencies. “An absence of oversight engendered systematic, and systemic, abuse.”
The announcement marks the beginning of what promises to be a political battle that’s likely to alter the president’s plan. Obama, who has called the “sweeping overhaul” of regulations one of his top domestic priorities, said wants to sign legislation to enact it by the end of the year."
Note the grand legitimizing theme: we need this overhaul due to "a failure of the entire system" (read: managed capitalism) and a supposed "absence of oversight" in the financial sector.
However, as anyone who has studied the situation already knows, many of the huge disasters of this financial panic have occurred in the most regulated sectors of the economy, namely the "too big to fail" banks and insurance firms.
As hedge fund manager John Paulson pointed out in last fall's DC hearings on hedge funds and the financial crisis, it was the heavily regulated banks which contributed most to the building panic due to their overleverage and imprudent bets on mortgage-backed bonds.
Let's not forget the remarkable failure of OFHEO (now part of FHFA), the oversight committee tasked specifically to watch Freddie Mac and Fannie Mae, which somehow managed to sign off on Fannie and Freddie's accounting practices just before these "government-sponsored-enterprises" admitted to manipulating earnings in a huge accounting fraud scandal.
Actually, OFHEO released a lengthy report on accounting irregularities at Fannie Mae in 2004, but the warnings were largely ignored by the media and attacked by politicians friendly with the GSEs. Where was the saving grace of government regulation in this instance?
Obama's lecture on financial regulation also (conveniently) fails to recognize the enormous role that government had in fostering the conditions which built this crisis, namely the Fed's easy money policies (which gave rise to the housing bubble) and the expansion of a social engineering program designed to encourage homeownership, no matter what the eventual cost was to the individual or society.
We could go on and on in this fashion, but it's best to just cut to the chase and say what needs to be said. The government is seeking to expand its reach (and the Fed's) over the private economy, on the heels of a financial crisis it helped create.
For more on this, please listen to the Thomas Woods Meltdown interview and see the related articles below.
Related articles and posts:
1. Thomas Woods: Meltdown interview - Finance Trends.
2. The Bailout Reader - Mises.org.
3. The Myth of Systemic Collapse - Real Clear Markets.