Will the blueprint be implemented?
Parts of it, sure. But given all the different players involved—lawmakers, regulators, administration officials—a wholesale overhaul of the regulatory structure, while certainly warranted, will be difficult to execute. "Treasury is probably not going to get everything that they asked for," says Lou Crandall, chief economist at Wrightson ICAP. "However, some of these proposals are ideas that have been recognized as good ideas for a long time." Issues closer to the core of the current crisis—such as streamlining bank regulation—will be easier to get through Congress, Crandall says. Issues on the fringes of the crisis, like the federal insurance charter, face longer odds.
When will the changes take place?
Paulson insists that most of these reforms should not be implemented until the current crisis in the credit markets has been resolved. Trying to reform the regulatory structure in the midst of the current market turmoil could make matters worse, he says. "These long-term ideas require thoughtful discussion and will not be resolved this month or even this year," Paulson says. Crandall says it could be years before components of the Paulson plan are implemented. "I don't think there is any doubt that this crisis will lead to landmark financial services regulatory legislation," Crandall says. "[But] it takes a while for the conventional wisdom to gel in Washington."
Would the plan address the current problems in the housing and credit markets?
Nope. The plan was not intended to do so but rather to update the regulatory framework in the hopes of preventing future financial crises, says Dean Baker, codirector of the Center for Economic and Policy Research. Baker, however, is less than enthusiastic about the plan, arguing that it would not have prevented the current crisis even if it had been in place years ago. "It's not clear that the regulators would have the authority to prevent investment banks from taking on the liabilities that not only jeopardized themselves—but in the view of [Fed Chairman Ben] Bernanke and just about everyone else—the whole financial system," Baker says.
Would the blueprint prevent future crises?
Not all of them. Even Paulson admits that better regulation is not a silver bullet. "I am not suggesting that more regulation is the answer," Paulson said. "Or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years."
What will the introduction of the plan accomplish?
While an eventual revamping of the financial services regulatory structure may take a different shape than Paulson has proposed, his blueprint is significant because it will get key players talking about the issue, Sack says. "We may end up with a regulatory structure that looks very different," Sack says. "[But] it's a useful first step to [introduce] some ideas about the regulatory framework and work from there."
Sack says that the current regulatory structure probably involved too many players with different and overlapping interests. "It makes sense to rethink that regulation," Sack says. "It's just too bad it took this situation to push that forward."