Financial ‘reform’: an empty shell

After almost eight years of putting up with an administration in Washington that 99 times out of 100 chooses style over substance – or, if you prefer, words over deeds – the financial regulatory “reform” proposal put forth by Treasury Secretary Henry Paulson fits right in.

The concerns raised by New Hampshire’s financial regulators in our story that begins on the front page of this issue are well noted. Beyond that, the Bush administration’s proposal reads more like one of those pork-laden Christmas tree bills of which Congress is so often fond. In other words, there’s something for everyone – and when we say “everyone,” we mean everyone in Mr. Paulson’s neighborhood – Wall Street, where he previously reigned as chairman of Goldman Sachs.

While many in the national media are dutifully referring to the Paulson proposal as a “sweeping overhaul” of our financial regulatory structure, what it really amounts to is a transparent attempt to further deregulate an industry that is sorely in need of being reined in. The subprime crisis and related greed-fueled schemes indulged in by banks and securities companies were in large part a result of an inadequate federal regulatory structure that — apparently by design over the last several years – was left toothless and essentially incapacitated. Federal regulators were unable and unwilling to restrain banks and securities companies, even as it became apparent that their spurious off-books operations and credit default swaps proved to be a house of cards.

Paulson’s proposal does little to address what’s needed: restrictions on the kind of risky, arcane investment schemes that got us where we are today; regulation of the bond-rating agencies, which currently are paid by the banks and securities companies to rate the instruments created by those companies; a federal government more willing to play an aggressive role in keeping greed from infesting our financial system; and an acknowledgement of and appreciation for the job that state financial regulators have been doing in protecting investors, especially when federal regulators have been regularly asleep at the switch.

In the end, the only thing “sweeping” about the Paulson proposal is its eagerness to hide the causes of the current financial crisis under the rug.