It's painfully clear that the U.S. financial regulatory system built on a Depression-era foundation must catch up with the complexities of today's economy. But the overhaul outlined Monday by Treasury Secretary Henry Paulson doesn't do the job.

It doesn't even address the subprime lending and home foreclosure crisis that has thrown the economy into turmoil.

Paulson's blueprint would shuffle the deck among financial regulators but not significantly change the rules of the game. It doesn't strengthen, let alone increase, regulation. Once again, the Bush administration has failed to recognize the folly of the laissez-faire philosophy that created this mess in the first place.

The chief feature of Paulson's plan would be centralizing oversight by combining some existing agencies into three broad regulatory bodies. The Federal Reserve would gain new powers to oversee "market stability" beyond commercial banking. A "prudential financial regulator" would supervise banks and other deposit-taking institutions. And a "business conduct regulator" would oversee consumer protections and business practices.

But the plan fails to clarify which practices need to stop or to be more transparent. It would do little to rein in the risky financial products at the heart of today's crisis or to crack down on the lenders whose fast-and-loose practices fueled the implosion. It would fail to adequately police investment banks, which should be required to hold more capital to cover risks and prevent the need for public bailouts.

Paulson's proposal does open the door to discussion about long-term changes. But rewriting the org chart of regulators won't put the nation's financial house in order.

Source: MCT