Business braces for more regulation

updated 2:15 p.m. ET Nov. 2, 2008

WASHINGTON - Business groups are bracing for a wave of new regulation next year, no matter who wins the White House. And some lobbyists already are pushing back by warning that too much regulation would worsen an ailing economy.

"The pendulum never stops in the middle," said Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce.

Others, such as groups representing financial services, are seeking to use regulatory overhauls to advance their own priorities. Some industry groups are even replacing Republican lobbyists with Democrats, in anticipation of a larger Democratic majority in Congress, if not a victory for Sen. Barack Obama.

Obama and congressional Democrats are proposing "an enormity of costly new government programs" that would burden the economy and small business, Josten said.

The financial meltdown, coupled with concerns about climate change, food safety and other issues, has built momentum to reverse a three-decade trend of deregulation. Analysts expect a wide-ranging effort to tighten government oversight of many parts of the economy.

Obama blames the meltdown on "the failed economic policies of the past eight years," including deregulation of the financial industry. Republican nominee Sen. John McCain has also criticized Wall Street and corporate excesses and, if elected, would likely face a Congress with more Democratic members determined to push for closer oversight.

"The overall atmosphere in this town has changed," said Robert Litan, a regulatory expert at the Brookings Institution. "There's more sympathy for regulation than there was before and more distrust of large private-sector organizations."

Another factor driving new rules will be the tight budgets the next president and Congress will face. The Bush administration has forecast that the deficit for the budget year that began Oct. 1 will reach a record $482 billion. The financial bailout approved Oct. 3 could raise that to record levels of $700 billion or more.

As a result, the next president will likely focus on regulation and other steps that don't "require new legislation or spending," said Paul Light, a professor at New York University's Wagner School of Public Service.

Here is how several industries are responding to the era of tighter regulation they expect:

Banks and the financial sector
If there's one industry with a bull's eye on its back, it's financial services. Leading Democratic lawmakers have made clear that Congress will push for tougher oversight next year.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said last week that the House and Senate might form a special joint committee to draft the most sweeping changes to the financial regulatory system since the 1930s.

Democrats have yet to disclose details of the changes they will push. But unregulated corners of the industry, such as hedge funds and derivatives, could be subject to federal regulation for the first time. So could insurance companies, which are now regulated at the state level.

Industry lobbyists are seeking to use the overhaul to streamline what they see as overlapping regulators that operate on outdated distinctions among commercial banks, thrifts and investment banks.

Economy in Turmoil Jobless rate rises to 26-year high Out-of-work with no place to land, the legions of America's unemployed are growing. The nation's unemployment rate rose to 9.5 percent in June, a 26-year high. Factory orders rise more than expected in May Calif., other states face tough budget choices Pending home sales climb in May Manufacturing report boosts economic hope

Trade groups such as the Financial Services Roundtable argue that since many of those companies provide similar services, regulators such as the Office of Thrift Supervision and the Treasury Department's Office of the Comptroller of the Currency should be combined.

The Roundtable represents 100 of the largest banks and insurance companies, including Bank of America Corp., Allstate Corp. and Wells Fargo Co.

Mortgage lending practices, now overseen at the state level, may also be subject to more federal oversight. Obama backs a measure pushed by consumer groups — and opposed by the financial industry — that would let judges in bankruptcy courts adjust individual mortgages to help reduce foreclosures.

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