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KAI RYSSDAL: Adam Smith’s best known work, “On The Wealth of Nations,” ran five volumes and I don’t know how many pages, so odds are he did use the phrase “market stability” in there someplace, but Smith had nothing on Henry Paulson. The Treasury secretary used the word “stability” 21 times today as he announced the administration’s proposal for new financial market rules and regulations. The general idea, Mr. Paulson said, was to simplify things, but his plan touches on almost everyone involved in finance.
Our Washington bureau chief John Dimsdale took a stroll over to the Treasury Department this morning. He’s got the first part of our story.
JOHN DIMSDALE: The nation’s banking elite filed into the Treasury Department’s marble-walled Cash Room with an air of anticipation. One executive said he was there to see history being made, and Secretary Paulson made clear he, too, has his eye on the long term, and not on a quick fix for the current shortage of credit. His blueprint has been a year in the making. He said the result is a comprehensive restructuring of a system that’s not keeping up with modern finance.
HENRY PAULSON: We have five federal deposit institution regulators in addition to state-based supervision. The bulk of these regulatory responses made sense at the time they were created, but as we look at today’s financial markets, the lack of a comprehensive design is clear.
The blueprint would consolidate regulators into three broad areas. A new agency would be in charge of business conduct and consumer regulation. Paulson also recommends the federal government take over state jurisdiction of the insurance industry, and he would expand the Federal Reserve Board’s monetary tools to stabilize markets.
PAULSON: This market stability regulator’s job sounds difficult, and I will assure you it is. No regulator can prevent all instability and market turmoil, and this one won’t either. I would expect that we will continue to go through periods of market stress every five to 10 years.
One lesson learned from the current credit crisis: Paulson’s blueprint asks Congress to approve a Mortgage Origination Commission to license mortgage lenders and establish minimum standards for loan security.
In Washington, I’m John Dimsdale for Marketplace.
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