Congress eyes tough new regulations amid financial crisis
WASHINGTON - A Congress criticized for being asleep at the switch while financial problems festered is eying tough new regulations for investment banks and a new government role in the mortgage market as Wall Street reels from another round of collapses.
Just weeks after approving a housing-rescue package designed to help homeowners avoid foreclosure and prevent further spread of the credit crisis, lawmakers are considering more far-reaching actions to bring order to the freewheeling array of financial products and practices that have led some Wall Street institutions to the brink of failure.
They're also weighing what role, if any, the government-sponsored mortgage giants Fannie Mae and Freddie Mac should play in the future after a federal regulator took over the troubled firms last weekend. Lawmakers have dusted off a wide range of plans for the companies, which together own or back $5 trillion in mortgages - almost half the nation's total.
Options include taking the companies private altogether, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.
The bankruptcy of Lehman Brothers, the forced sale of Merrill Lynch to Bank of America and new worries about the stability of insurer American International Group Inc. on Monday injected new energy into the emerging Capitol Hill debate about stiffer financial regulation. The discussion began in March after the near-collapse of Bear Stearns, when the Federal Reserve stepped in to guarantee $30 billion of the investment bank's assets, including risky mortgage-backed securities.
At the time, Treasury Secretary Henry Paulson said "the world has changed," and stepped-up regulation would follow the government help for the investment bank.
There's no chance that Congress will act on any of the ideas this year, with just seven weeks until Election Day and lawmakers scheduled to scatter in a couple of weeks to campaign. But they are likely to preoccupy the new Congress and the next president.
In the shorter term, lawmakers in both parties want to help key groups weather the financial storms. Republicans and Democrats support giving up to $50 billion in loans to the struggling auto industry before Congress adjourns. Democrats are pushing for a second economic aid package worth that much to fund public works projects, provide jobless benefits and send heating and food aid to the poor.
Paulson backed out of a Tuesday appearance before the Senate Banking Committee on the Fannie and Freddie takeover, telling lawmakers he was too engaged in the latest crisis to testify, the panel's staff said. Later, after learning Paulson would be speaking to a Washington think tank the same day, an aide to Sen. Chris Dodd, D-Conn., the committee chairman, called the Treasury chief's no-show "regrettable" and said Dodd would swiftly reschedule and "aggressively exercise the committee's oversight function."