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WASHINGTON — A vast reshuffling of U.S. financial regulators pitched by Treasury Secretary Henry Paulson on Monday is not so much about today’s economic crisis as tomorrow’s.

"These long-term ideas require thoughtful discussion and will not be resolved this month or even this year," Paulson acknowledged in a speech detailing his Blueprint for Regulatory Reform.

The proposals would broadly expand the powers of the Federal Reserve, merge the regulation of stock and commodities markets, fold savings and loan institutions under the umbrella of bank regulation and even allow insurance companies to opt out of state regulation in favor of a newly created federal insurance regulator.

Paulson’s plan also would create a new super-regulator whose powers would cut across various financial services with overarching responsibility for protecting investors and consumers.
The plan also would create a new federal entity to oversee the mortgage origination process so that lending standards never again would erode to the point where they sink the national housing market. That proposal has bipartisan support and could win early approval.

However, very little in the plan can be set in motion by executive order or under existing regulatory authority, so it will be up to the next president and Congress to determine how to proceed.

Leading Democrats who now control Congress didn’t rush to embrace the Paulson plan.

"I would call this the

wild pitch. It’s not even close

to the strike zone," said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, which would oversee many of the proposals.

Other Democrats said the plan offers no solutions for people facing foreclosure from rising interest rates, job losses from a slowing economy or enough oversight.

"The administration’s hands-off policies on regulation of securities and commodities markets and its continued pressure for less and less regulation have contributed to the mess that the markets are in," U.S. Sen. Carl Levin, D-Mich., said in a statement. "Reasonable regulation, not just coordination, of those markets is overdue."

Paulson said the economy’s current stumbles had nothing to do with lax regulation.

"I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years," he said.

The Paulson plan offers three time frames for regulatory changes: short-term proposals that could be enacted before the next president takes office in January, intermediate-term plans that could take two to eight years for congressional approval and long-range goals that serve mainly as discussion points.

The biggest change would be authorizing the Federal Reserve to become a supercop, with supervisory powers over any aspect of financial markets that presents danger to the financial system.

It isn’t clear how much Fed staff would have to increase for the agency to be effective at its expanded responsibilities.

"If you only address issues at a higher level of engagement, you may not have the institutional strength that comes from getting into the details," said Vince Reinhart, who was a Fed division director from 2001 to 2007 us fast cash. "The Fed is ’special forces’ that get helicoptered in when things get really serious. … The mission is very big because any entity could potentially have ‘consequences for financial stability.’"

The most immediate thing that Paulson thinks can and should be done this year is creating a Mortgage Origination Commission to provide much-needed federal oversight for the home loan origination process.

"Simply put, that process is broken," Paulson said.

This new commission, which appears to have support from top Democrats, would be composed of a representative from each of the five federal agencies that have some jurisdiction over banking — the Federal Reserve, Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration — and a representative from the association of state banking supervisors.

The president would appoint a director of the commission, which would design professional standards for licensing mortgage brokers and others who originate home loans. The group would establish educational requirements and either provide a registry for complaints or take disciplinary action against individual mortgage brokers, or both.

"This proposal addresses how the registry requirement would be enforced, and establishes an office to oversee individual and state compliance with its rules. We support this aspect of the recommendations," said George Hanzimanolis, the president of the National Association of Mortgage Brokers.

Another part of the plan is to allow national insurance companies to opt out of state regulation if they’re willing to be regulated by a federal insurance regulator, which doesn’t now exist. The Treasury argues that 50 separate state regulatory schemes put insurers at a disadvantage in a global economy.

But Sen. Dodd of Connecticut, where many top insurers are based, suggested that there may be a more middle-ground approach. He said he thought federal regulation of life insurance could be a good idea.

But, Dodd added, states probably would do a better job regulating the property and casualty insurers, who underwrite policies for protection against losses from hurricanes, earthquakes, tornadoes and other disasters.

Kevin G. Hall of McClatchy Newspapers contributed to this report.

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