Paulson Proposes a Regulatory Overhaul

Updated from 12:44 p.m. EDT

The Bush Administration unveiled a sweeping plan to overhaul the regulation of U.S. financial markets on Monday that would give the Federal Reserve broad, new powers to oversee market stability.

The proposals amount to the first salvo in what is expected to be a long and contentious debate over the government's role in financial markets in light of the U.S. housing and credit crisis. Shaky credit tied to mortgages has sent financial markets into turmoil by leading to large asset writedowns at banks and dried up liquidity, all of which led to the swift demise of a major investment bank, Bear Stearns(BSC Quote).

Initial criticisms of the plan will likely focus on the Fed's perceived failure to use its existing regulatory powers to dampen the housing bubble, as well as the Bush Administration's longstanding contention that financial markets are over-regulated, sending investors to friendlier markets overseas. Moreover, the proposals come at a time when the crisis is already raging, and Democrats are calling on the federal government to focus directly on consumers that are being hurt by its fallout. ...