Paulson to unveil new plan overhauling the financial markets

The Fed has done quite a lot recently to prevent the economy from shifting into negative territory and in the process sacrifice to a certain extent - its independence by yielding to that pressure. However, Fed’s credit policy has been good (in my humble opinion) and in a way - it vindicates its unprecedented moves.

But that said - according to latest news reported by Bloomberg & CNNMoney - on Monday, the Treasury Secretary Henry Paulson will unveil a plan which has been in the works since June ‘07 - just two months before the current sub-prime crunch began affecting financial markets.

The plan, which is not expected to be final before end of President Bush’s term, is likely to call for the creation of new regulatory agencies with broad powers over lending, the securities industry and business conduct.

The report besides recommending more power for the Federal Reserve, also proposes combining the Office of Comptroller of the Currency which dates back to the Civil War - and the Office of Thrift Supervision into a single banking overseer.

In addition, the draft, calls for the merging of the Securities and Exchange Commission - (which regulates investment banks, securities and stock exchanges, and the CFTC, which oversees about $4.2 trillion of daily trades in products ranging from orange juice to foreign currencies) - and the Commodity Futures Trading Commission.

The Federal Reserve will have the authority to look at the financial status of any institution that could affect market stability.

Furthermore, the executive summary of Paulson’s draft report calls for legislation that creates uniform minimum licensing qualification standards for state mortgage market participants. The authority to draft mortgage regulations would remain at the Fed.

Nearly all of the proposals will require the approval of Congress.

According to Treasury Department spokeswoman Michele Davis - these proposals are aimed at modernizing the financial oversight structure.

Initial response from the financial industry was positive. Tim Ryan, president and CEO of the Securities Industry and Financial Markets Association called Paulson’s proposals “a thoughtful and sweeping plan.”