Treasury chief frames debate over regulation

When Treasury Secretary Henry M. Paulson Jr. unveiled his proposal to overhaul federal financial regulation Monday, President Bush was airborne, speeding out of Washington on Air Force One.

That may have been a coincidence. But when the president’s spokeswoman was asked about the plan, she made it clear that the White House was treating the proposal as Paulson’s, not Bush’s.

“What I would tell you from the president’s point of view is that we trust Secretary Paulson to put forward what he thinks is a constructive plan that is well thought out,” Dana Perino told reporters on the presidential jet en route to Ukraine.

For all the pomp of the Treasury rollout, even Paulson acknowledged that his long-term vision of a streamlined federal regulatory system is likely to remain just that -- a vision, requiring more debate and more lawmaking than is possible in the last months of a lame-duck administration.

But the one thing he may have done -- and it may have been his true goal all along -- is to set the terms of the debate over regulation, at least for the foreseeable future. Those terms reflect his Wall Street pedigree more than the cultures of Washington or Main Street.

“I have the greatest confidence in the resiliency, flexibility and strength of our economy and our capital markets,” he said Monday. “We are focused on maintaining stable, orderly and liquid financial markets and ensuring that our banks continue to support the economy by making credit available to consumers and businesses.”

Paulson spent the bulk of his career at Wall Street powerhouse Goldman Sachs, the last half-dozen as chairman and chief executive. It took a lot of work for Bush to persuade him to give up his $38-million job in New York for a $183,500 Cabinet post in Washington. Paulson reportedly turned down the position more than once before accepting in May 2006.

The sticking point was reportedly not salary, but the powers of the office. His two predecessors, Paul H. O’Neill and John W. Snow, were widely perceived as little more than mouthpieces for economic policies, made in the White House, that amounted to little more than repeated tax cuts.

Paulson, by contrast, quickly became the administration’s dominant economic policymaker. He has led the response to both the housing downturn and the resulting freeze in credit that nearly sank investment house Bear Stearns & Co.

The swift action by Paulson and Federal Reserve Chairman Ben S. Bernanke to rescue Bear Stearns earned plaudits from Democrats and Republicans. But Democrats are increasingly critical of both Paulson and the White House, saying they are doing more to help big businesses, like banks, rather than little guys, like duped homeowners in foreclosure.

“I like Secretary Paulson very much. His proposal is worth considering. But it won’t do one single thing to address those currently in foreclosure,” Senate Majority Leader Harry Reid (D-Nev.) said Monday on the Senate floor. “We must do more. . . . We can’t take a wait-and-see approach.”

Very little in Paulson’s proposal would have any near-term effect on homeowners. The only consumer-oriented proposal is the creation of a mortgage origination commission that would recommend standards for licensing and regulating mortgage brokers and lenders.

Long term, however, Paulson’s plan would address several of Wall Street’s peeves with Washington. For instance, it would combine the Securities and Exchange Commission with the less stringent, more business-friendly Commodity Futures Trading Commission. Importantly, it would make it clear that the commission’s approach to regulation would prevail in the merged agency.

But for any of Paulson’s vision to come into being, Congress will have to pass it into law. For the moment, at least, Congress is inclined toward more regulation, not less.

“The administration’s deregulation-above-all-else attitude helped cause the problems we now face,” said Sen. Charles E. Schumer (D-N.Y.), chairman of Congress’ Joint Economic Committee.

“If we focus only on consolidation -- and don’t also adopt a careful, but more pro-regulation, approach -- then we will have approached this modernizing task with too much of a pre-Bear Stearns mind-set.”

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maura.reynolds@latimes.com