Last week, Treasury Secretary Henry M. Paulson Jr. presented a staggering yet comprehensive plan to overhaul the regulation of the nation's financial system. In concept, it was a wonderful idea – one could argue and dissect its multiple complexities, but the notion of overhauling an antiquated system should have been welcomed with applause.
Sadly, Paulson came out too late with his proposals. Without having time as an ally, his efforts were doomed from the start.
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The proposed overhaul was supposedly a year in the making; if that was the case, the Treasury Department did a fantastic job in keeping that news as a secret. But it's arrival at this particular moment in time, however, was very peculiar for two obvious reasons: It followed the Federal Reserve's frenetic effort to save Bear Stearns from extinction, and it comes nine months before the Bush Administration's exit from Washington.
The Bear Stearns debacle, arguably, would never have occurred had the proposed regulations been in place. And, honestly, why weren't they in place? Why did the Bush Administration wait until it was on the final feathers of its lame duck term to present such sweeping changes – especially when it could have presented these ideas for speedy approval during its first six years with a Republican-controlled Congress?Â
These proposals don't lack support, and our industry is clearly intrigued with the notion of reform. Kieran P. Quinn, chairman of the Mortgage Bankers Association, expressed such confidence when he issued his public comment on the Paulson proposals. ‘[This] report will initiate a crucial policy discussion, one which is especially important at this time of turmoil in the credit markets,’ he said.
However, policy discussion on these proposals will go nowhere, due to the current political climate. Sen. Christopher J. Dodd, D-Conn., the head of the Senate Banking Committee, used a baseball analogy to describe the plan: ‘This is a wild pitch. It is not even close to the strike zone.’ Dodd then joined Sen. Harry Reid, D-Nev., the majority leader, in telling reporters that the proposal did not merit priority on the Senate's schedule for this year, thus making the Paulson plan a D.O.A. at Capitol Hill.
Why did Dodd and Reid halt the flow of debate before it even started? Part of the reason was the argument that the proposals did not address the current housing market crisis. Well, that's silly – Paulson's plans focused on the future, not the present. There is no shortage of reform proposals relating to the present situation floating about Washington (and many of them are stuck in Congress, truth be told).
And part of the reason is the mutually antagonistic relation between Congress and the White House. The hostility has created a stalemate in domestic policy debate (Congress is still ceding to the White House on foreign policy), and there's no evidence that will be resolved before the next administration takes office.Â
Over time, I believe that many people will revisit the Paulson proposals as a lost opportunity for meaningful reform. If the subject is revived with the next president, we'll all benefit from the policy debate that will follow. If it doesn't, however, we can look forward to confirming George Santayana's famous comment about what happens to those who cannot remember the past.
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com)
