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Obama to offer broad rewrite of market rules

Associated Press / June 15, 2009
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WASHINGTON - President Obama is ready to roll out an overhaul of the intricate rules and systems that govern America's troubled financial institutions, proposing the most ambitious revision since the Great Depression.

The goal is to prevent a recurrence of the economic crisis that erupted last fall, with devastating consequences still reverberating around the world.

The regulatory changes, to be announced Wednesday, could result in a major realignment of power and authority between government agencies that set the rules for banking, lending, and investing and touch people's lives through daily transactions, from credit cards to mortgages and mutual funds.

The proposals are the source of a spirited debate in Congress over whether they will prove too timid - or place too heavy a hand on the levers of capitalism.

The administration is looking to address four perceived weaknesses:

  • The lack of an all-seeing federal entity to detect institutional stresses that threaten the financial system, and the government's inability to step in and unwind large institutions before they choke the system. The Federal Deposit Insurance Corp. can do this with banks. But the government lacked the power to do the same with a behemoth such as the insurer American International Group Inc.
  • Undercapitalization of large financial institutions. Heading into the financial crisis, too many banks were leveraged with significantly more debt than equity.
  • The emergence of large, lightly regulated markets, such as hedge funds, and of big insurers, without a federal overseer.
  • Consumers and lenders whose unwitting or reckless credit and borrowing decisions placed families under staggering debt and contributed to the instability of the financial system.