A proposal on Monday for the most sweeping overhaul of financial market regulation since the New Deal evoked a range of reaction from praise to outright skepticism.
But even backers of the plan, unveiled by US Treasury Secretary Henry Paulson, said the effort would have little or no impact on the current economic turmoil caused by rampant excesses in mortgage lending and speculation.
"Government has a responsibility to make sure our financial system is regulated effectively. And in this area, we can do a better job," Paulson said in unveiling the plan.
Although the plan was announced amid a crisis of confidence in financial markets, Paulson said it is not "a response to the circumstances of the day," but aimed at addressing "complex, long-term issues" to help make markets more efficient and competitive.
Analysts at Wrightson ICAP said the plan "would create a more coherent supervisory scheme and would eliminate some of the inconsistencies arising from today's patchwork system."
Tim Ryan, president of the Securities Industry and Financial Markets Association, said Paulson "delivered a thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes."
"Treasury's three-step approach is very wise because it allows time for serious analysis, discussion and important choices," Ryan said.
But Robert Eisenbeis, economist at Cumberland Advisors, said he was disappointed with the plan.
"Despite the claim that they are not in response to the current problems, this set is like the other in that they are largely recommendations that either have been on the back shelf and/or are knee-jerk responses to perceived immediate problems," Eisenbeis said.
"Most reform proposals fail because they don't address the issue of how to overcome the self-interests of both the regulated and regulatory agencies to move to a better and `more optimal regime.' This report is no exception and will suffer the same fate," he said.
Under the proposal described as the most ambitious since the Great Depression, the US Federal Reserve would gain oversight of Wall Street securities firms which now have access to the central bank's emergency lending facilities.
The plan also calls for a new federal panel that would oversee state systems for regulating participants in mortgage lending.
It would eliminate the differences between supervision of banks and savings-and-loan institutions, creating a single entity to regulate both, and merge the Securities and Exchange Commission, which regulates companies with publicly traded shares, with the Commodities Futures Trading Commission, which oversees commodities trading.
The announcement comes as the US regulatory system is blamed for failing to prevent rampant excesses in mortgage lending that set off what is now seen as the worst financial crisis in decades.
"For those of you who think we are not in a recession, are you convinced now? Forget recession, we have jumped right into depression-like reforms," said Kevin Giddis, market analyst at Morgan Keegan.
Economist Paul Krugman said the plan is "about creating the appearance of responding to the current crisis, without actually doing anything substantive."
Krugman said the Bush administration "has spent the last seven years trying to do away with government oversight of the financial industry."
Democratic presidential hopeful Senator Hillary Clinton said she agrees with some of the recommendations but that it "is too short on action."
"Ensuring effective functioning of our financial markets is not solely an issue of how we rearrange the chairs that regulators sit in," said Clinton, who argued for federal standards for mortgage lenders and tighter supervision of "exotic financial products" such as collateralized debt obligations linked to mortgages.
CME Group, operator of the Chicago Mercantile Exchange, said it would be a mistake to merge the two regulatory agencies that oversee the securities exchanges and futures markets.
"The differences are organic, not accidental, and an effort to homogenize the two regulatory regimes is certain to cause more harm than good," the exchange said.
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