Right Wing In Washington Continues to wage war on Middle class america

The Treasury Department is rushing to complete its own blueprint for overhauling what is now an alphabet soup of federal and state regulators that often compete against each other and protect their particular slices of the industry as if they were constituents.

But the two sides strongly disagree about whether, after decades of a freewheeling encouragement of exotic new services and new players like hedge funds, the pendulum should swing back to tighter control.

One central battle is likely to be over tightening supervision of the risk-management practices of Wall Street investment banks and perhaps requiring them to keep higher cash reserves as a cushion against unexpected trading losses.

The Democratic proposals would subject Wall Street firms to the kind of strict oversight that banks have had for decades. If firms like Goldman Sachs and Merrill Lynch were required to set aside substantially bigger capital reserves, they would have that much less available for lending, trading and underwriting new securities.

Wall Street firms played a central role in packaging and financing trillions of dollars in high-risk home mortgages, and the losses tied to those mortgages are at the heart of the deepening crisis in the financial markets that has pushed the economy to the brink of a recession.

“You need regulation that is adequate to the scope of innovation and to the scope of activity,” said Representative Barney Frank, the Democrat of Massachusetts who is chairman of the House Financial Services Committee.