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Paulson's ideas could tighten market

U.S. Treasury Secretary Henry Paulson addresses developments in financial markets.

TEXT OF STORY

Doug Krizner: It's easy to look in the rear-view mirror and see the problems that created the subprime crisis. But how do we learn from those mistakes?

Treasury Secretary Henry Paulson wants stronger federal oversight. He outlined several recommendations yesterday. Stacey Vanek-Smith looks at whether this extra regulation will help.


Stacey Vanek-Smith: Secretary Paulson's suggestions include tougher licensing requirements for mortgage lenders. He also wants a review of banking practices. Paulson said the measures will help make transactions more transparent and markets more efficient.

But safeguarding the future against another subprime meltdown might make current problems worse, says Chris Low, chief economist with FTN financial.

Chris Low: Hopefully, what this regulation will do is it will prevent the next housing crisis. The current housing crisis cannot be resolved until home sales recover and foreclosure rates fall. And unfortunately, what new regulation does on the margin -- or at least the sort of negative aspect of it -- is that it means that there are marginal homebuyers who won't qualify now to buy a home.

Low says new regulations will make the credit market even tighter, and that could do more harm than good.

I'm Stacey Vanek-Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.
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