President Barack Obama on Wednesday proposed new rules for the country's financial system, calling the major changes a critically important response to the economic crisis and the greatest regulatory transformation since the 1930s. Obama's proposed plan would give new powers to the Federal Reserve (Fed) to oversee the entire financial system and also would create a new consumer protection agency to guard against credit and mortgage abuses that played a significant role in the current crisis. Under the plan, the Fed would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the country's financial system. But even as it gained new powers, the Fed would lose some banking authority to the new Consumer Financial Protection Agency. The U.S. president said the plan was designed in consultation with lawmakers, regulators, and the institutions it seeks to police. “We seek a careful balance,” he said at the White House. The plan would dismantle the Office of Thrift Supervision, replacing it with a system aimed at closing gaps in coverage and keeping institutions from shopping for the most lenient bank regulator. The consumer protection agency would place new restrictions on lenders and mortgage brokers, requiring them to offer simple loans to consumers. “Mortgage brokers will be held to higher standards; exotic mortgages that hide exploding costs will no longer be the norm; home mortgage disclosures will be reasonable, clearly written, and concise,” Obama said. Obama blamed the financial crisis on “a culture of irresponsibility” that he said originated on Wall Street but moved to businesses and consumers. He noted that regulations crafted to deal with the Great Depression had been “overwhelmed by the speed, scope, and sophistication of a 21st century global economy.” Obama attributed much of the country's current problem to “a cascade of mistakes and missed opportunities” that happened over decades. Specifically, he traced the troubles to complex financial instruments such as asset-backed securities that ended up concentrating risk. “It was easy money,” he said. “But these schemes were built on a pile of sand.” The regulatory system either had gaps or overlaps, and it had little accountability, the president said. “Millions of Americans who have worked hard and behaved responsibly have seen their life dreams eroded by the irresponsibility of others and the failure of their government to provide adequate oversight,” he said.
