Historic Overhaul of Finance Rules

By DAMIAN PALETTA WASHINGTON -- President Barack Obama urged policy makers to rewrite the rules governing U.S. finance, unveiling far-reaching proposals that would affect nearly every aspect of banking and markets. The White House hopes Congress can complete work on the plan by year's end. But it is sure to face opposition both from some on the right who say it threatens to throttle free markets and others on the left who say it doesn't go far enough. Some in Congress are cautioning against haste. The proposals are the latest instance of the administration seeking to expand its reach in the private sector. White House officials said the trauma of the current crisis shows a more muscular federal arsenal is needed to protect the financial system. "Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and by the failure of their government to provide adequate oversight," Mr. Obama said. "Our entire economy has been undermined by that failure." The administration's vision would have consumers offered more "plain vanilla" financial products. A new agency would regulate financial products for consumers, such as mortgages. There would be rules designed to mitigate booms and busts, a goal often sought but rarely reached. The U.S. would gain powers to take over tottering financial giants and supervise firms that could pose a threat to financial stability, even those that don't own banks. Executive compensation and hedge funds would face more scrutiny. Bank regulation would be streamlined somewhat. Financial firms would be required to hold more capital. On Wall Street, there was relief the proposals were not more draconian, along with a realization the reduced appetite for risk that took hold after the crisis might be a long-term feature of the landscape. The process now heads to Capitol Hill. One tenet of the new plan has already made some lawmakers uncomfortable: a push to centralize more power in the Federal Reserve. Banks, which are expected to lobby hard as the bill moves through Congress, have resisted the provision that would create a new consumer agency. The industry argues it could stifle innovation and make loans more expensive. Treasury Secretary Timothy Geithner will get an early sense of the reception Thursday when he testifies before two congressional committees. "Haste is dangerous, especially when you are dealing with comprehensive change in our financial system," said Republican Sen. Richard Shelby of Alabama, a conservative on such matters. "This could be the most important piece of legislation that we've had in the banking committee in 50 years."