Obama to Establish New Financial Regulatory Agency with Broad Powers

By Fred Lucas | June 16, 2009 | 6:41 PM EDT

President Barack Obama

White House (CNSNews.com) - President Barack Obama plans to make a detailed announcement on Wednesday about a plan for a new federal regulatory agency that would oversee credit cards and banking transactions but also reportedly give the federal government power to intervene quickly into myriad areas of the economy.

Obama was guarded about the facts concerning the new agency during a press conference Tuesday. But he confirmed the pending creation of the Consumer Financial Protection Agency.

“The broad principle is that a lack of oversight, a series of regulatory gaps allowed financial institutions -- not just banks, but non-bank institutions -- to engage in wild risk-taking that didn't simply imperil those institutions but imperiled the United States economy and had a profound recessionary effect on the world economy,” Obama said.

“We have to make sure that we've got an updated regulatory system that hasn't been significantly changed since the 1930s to deal with enormous global capital flows and a range of new instruments and risk-taking that has been very dangerous for the American people,” he said.

Several financial regulatory agencies exist, including the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corporation.

Obama said his administration will put forward a strong set of regulations to prevent another financial crisis like the one that started last year.

“When you see the overall approach that we're taking, you'll see that we have not, in fact, added a whole host of regulatory agencies,” Obama said. “In fact, there's going to be streamlining, consolidation, and additional overlap so that you don't find people falling through the gaps --  whether it's on the consumer protection side, the investor protection side, the systemic risk that we need to make sure is avoided on all those issues that's going to be a much more effectively integrated system than previously.”

Conservatives have argued that lack of regulation did not bring on the economic downturn but rather regulations and federal loose-lending programs did, such as the Community Reinvestment Act, which urged banks to provide mortgages to loan applicants that might not be able to afford loans.

Economist Thomas Sowell at the Hoover Institution is the author of the new book, The Housing Boom and Bust, which details the mortgage crisis at the center of the economic problems that bubbled over last fall. In a May 20 interview with Reason magazine, Sowell said of the situation: “[T]he people I would blame the most in the sense that without their interference other problems would have been within manageable means are the politicians -- people in Congress and the president and regulators -- who pushed the lenders and the banks and Fannie Mae and Freddie Mac into lending and buying mortgages based on people who didn’t meet standards that evolved in the marketplace and which had worked."

“Those politicians, in addition to that initial mistake, ignored all sorts of warnings from all sorts of sources,” said Sowell. “As I list in the book, the Economist in London, Fortune, Barron’s, people at the American Enterprise Institute, all over the map, saw that this policy of encouraging homeownership at all costs was leading to trouble.”

“Implicit in the idea of  ‘affordable housing’ is the notion that third parties know what people can afford better than those people know themselves,” said Sowell. “If you spell it out, it sounds so absurd you wonder how anyone could have believed it. But for politicians the question is not, ‘Is it absurd?’ The question is whether or not the public will buy it.”

On Tuesday, Obama stressed that Americans must view the economic culprit as lack of governmental regulation.

“You'll hear a lot of chatter about, ‘we don't need more regulation; government needs to get off our backs,’” said Obama. “There's a short memory, unfortunately, and I think that's what some of the special interests and lobbyists are going to be counting on, that somehow we've forgotten the disaster that arose out of their reckless behavior. And I'm going to keep on reminding them so we make sure that we get something in place that prevents this kind of situation from happening again.”

Concerning Obama’s policies, Sowell said:  “[W]hat we’ve seen in these past few months is an exercise in unprecedented powers. I mean, to fire the chairman of General Motors, to tell credit card companies how they should run their business, tell GM what kind of cars it should be making, and there’s no sign of an end in sight yet. Obama’s policies are a work in progress. So a lot depends on how far he will push, but I see no signs of him turning back. I see no substantial resistance in Congress. But you never know, as things start to unfold voices of sanity may prevail.”