Reporting from New York and Washington Walter Hamilton -- The Obama administration is proposing the farthest-reaching set of new rules for the financial industry since the Great Depression -- including measures that would for the first time regulate hedge funds and give government the power to seize and dismantle companies deemed a threat to the economy.
There is strong support for reform in the wake of last fall's near-meltdown of the global banking system, but several of the measures could trigger fierce resistance from the financial industry.
That sets up a potential battle in Congress -- with one side armed with public outrage, and the other with Wall Street money.
"Time after time in history, we've heard the promise that if only we had more regulations, we wouldn't find ourselves in the situation that we're in today," said Rep. Scott Garrett (R-N.J.), who labeled himself a skeptic. "But the Federal Reserve [was] created to ensure that asset bubbles and panics -- sort of like we have right now -- don't happen. But they do."
Congress must approve the measures, which were outlined by Treasury Secretary Timothy F. Geithner on Thursday as follows:
* Give the Federal Reserve or another agency broad authority to oversee the entire economy for signs of "systemic risk."
* Establish a government mechanism to seize and dismantle large institutions whose failure threatens the nation's financial stability.
* Pass tougher requirements for the amount of money and assets that financial institutions need to have on hand so they can withstand economic troubles.
* Require hedge funds, private equity firms and other private investment funds to register with the Securities and Exchange Commission.
* Set up a new, comprehensive framework of regulation of the complex financial instruments known as derivatives, including a central clearinghouse for trades in that market.
"Our system is wrapped today in extraordinary complexity, but beneath all that, financial systems serve an essential and basic function," Geithner told the House Financial Services Committee. "Financial institutions and markets transform the earnings and savings of American workers into the loans that finance a home, a new car or a college education."
Geithner and other administration officials contend that greater regulation is needed to prevent the kinds of financial emergencies that have strained the nation's treasury, including the $182.5-billion bailout of insurer American International Group Inc.
