In what seems like a bizarre twist, a prominent Democrat has come out in favor of the Bush administration’s plan to restructure the regulatory authority of the Federal Reserve.
Sen. Chuck Schumer (D-N.Y.) told CNBC’s Erin Burnett on the March 31 “Street Signs” that he likes Treasury Secretary Henry Paulson’s plan. Paulson unveiled his plan earlier that day in a press conference.
“I think it is a very good foundation,” Schumer said. “First, to regulate mortgage brokers makes eminent sense. Some of us have been calling for that for eight months. Mortgage bankers are regulated. They can’t sell a mortgage someone can’t afford. Mortgage brokers, who developed only in the last few years, are ‘the wild west’ in this whole thing and they need to be regulated.”
Schumer represents New York, home of many of the financial institutions that will be affected by this change in federal regulatory structure. Schumer is also a member of the U.S. Senate’s Banking, Housing and Urban Affairs Committee. Schumer favored Paulson’s idea of consolidation.
“[P]aulson’s beginning is very, very good,” Schumer said. “It’s a foundation. To consolidate regulators makes eminent sense. When you have so many regulators, sometimes they tell businesses to do different things. Many times things fall between the cracks.”
“I think Secretary Paulson – I want to give him a pat on the back for starting this discussion and starting this process,” Schumer said. “It’s not a moment too soon.”
Schumer disagreed, however, on the number of regulators. Paulson favored three regulators – the Federal Reserve to regulate market stability, the new “Prudential Financial Regulator” to oversee banks and insurance and the “Business Conduct Regulator,” which would assume the roles of the Commodity Futures Trading Commission (CTFC) and the Securities and Exchange Commission (SEC).
“Well, no – I think one regulator is the way to go,” Schumer said. “To have different ones – you often have things fall between the cracks. And there can be a very strong pro-consumer division in the regulatory body.”
Schumer said one regulator would be more efficient and would have more accountability.
“When you have one regulator, you know the buck stops in a certain place,” Schumer said. “When you have three, someone may say, ‘Let the other guy do it,’ or the opposite. They may fight for turf. One regulator works.”
Another Democrat, Rep. Barney Frank (Mass.), chairman of the House Financial Services Committee, criticized Paulson’s plan, saying it “goes too far in diminishing the role of the states.” However, Schumer praised it in that regard.
“When you have 50 states, each firing different regulatory modes at nationwide companies … they’re caught,” Schumer said. “They don’t know what to do. One regulator says do one thing. One regulator says do the other. This is a national, even an international financial market and to have 50 different states each saying their own thing – that’s an idea from the 19th century, not the 21st century.”