White House unveils Wall Street overhaul

Paulson rejected Democratic charges that it was lax regulation of mortgage brokers and the financial industry that had led to the current problems.

“I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil,” he said. “I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years.”

Sen. Charles Schumer, D-N.Y., said he strongly disagreed with Paulson. “The unregulated corners of our economy did much to contribute to the meltdown in our housing market and the accompanying spillover to our financial markets,” Schumer said in a statement. “The administration’s ’deregulation-above-all-else’ attitude helped cause the problems we now face.”

Banking groups raised strong objections to the plan while other groups expressed approval.

“Dismantling the thrift charter and crippling state banking charters will weaken banking in America,” said Edward Yingling, president of the American Bankers Association.

Tim Ryan, head of the Securities Industry and Financial Markets Association, which represents more than 650 securities firms, banks and asset managers, praised the overhaul proposal and said there was widespread agreement on the need for modernization in an era “where billions of dollars race across the globe with the click of a mouse.”

Frank Keating, president of the American Council of Life Insurers, praised the insurance proposals but Dan Mica, president of the Credit Union National Association, said his organization was “astonished and angered” by the plan to abolish a separate federal regulator for credit unions. He said this move would “essentially turn credit unions into banks.”

In Congress, House Financial Services Committee Chairman Barney Frank, who is working on his own regulatory revamp, called Paulson’s proposal a “constructive step forward” but said it wouldn’t give the Federal Reserve enough authority to carry out its expanded job to police the stability of the entire financial system.

Many Democrats said that Congress’ first priority should be to deal with the current mortgage crisis that is threatening millions of Americans with the loss of their homes and that an extensive debate on a regulatory overhaul should not occur until a new president is in office next year.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters that he viewed the administration’s plan as a “wild pitch — it’s not even close to the strike zone” of what is needed to help the country get through the current mortgage crisis. He said the real problem was not the need for new regulations but “the failure of this administration to utilize the tools they’ve been given over the years to deal with the very practices that caused this problem.”

The proposed overhaul would be the most extensive since the current regulatory system was created in response to the 1929 stock market crash and the Great Depression.

It comes at a time when the financial system faces its most severe credit crisis in two decades, one that has resulted in billions of dollars of losses for big banks and investment houses and the near-collapse of Bear Stearns, the country’s fifth-largest investment bank.

The rising tide of bad debt has made it harder for consumers and businesses to get credit, further weighing on an economy struggling with a prolonged housing slump and soaring energy prices. Many economists believe the country is already in a recession.

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