Please Mr. Obama, Keep Congress Away From the Financial Overhaul

By Liz PeekFinancial Columnist

Once again, the New York Times has provided an LOL moment. In this dismal period, there are far too few of those, so I want to share this one with FOX Forum readers. In this past Sunday's lead editorial, The Times opined about how we ought to go about reforming the financial sector. The paper is calling for a full-blown investigation, along the lines of the prestigious 9/11 commission, to look into the causes of the current financial collapse "to help us all understand what went wrong."

But, and it's an important "but", the piece calls for the process to differ in one important way from that well-regarded analysis of the terrorist attacks on the World Trade Center. This time, The Times suggests, the work "should not be performed by outside experts . . . it should be part of the Congressional process."

Can they be serious? Has it escaped The Times' notice that the "Congressional process" is what burst out of TV sets two weeks ago, ruining our dinners?

Which Congressman should be responsible for hiring The Times' proposed investigator, who will "participate in the questioning of witnesses?" Maybe Barney Frank? Charlie Rangel? Or should we ask Chris Dodd to oversee this process? Or maybe Maxine Waters? The Times suggested that this same investigator would also be asked to "prep lawmakers for the hearings" -- that would make him especially invaluable to Ms. Waters.

Instead of reliving the AIG bonus hearings -- among the sorrier political spectacles of our era -- let us point out to the editors of the NYT that various high-ranking members of Congress are considered by many experts to have been complicitin the subprime mortgage debacle, where all the problems began. Barney Frank, among others, is credited with pressuringFannie Mae and Freddie Mac to increase their subprime lending. -- He is also among those who prevented any correction of the industry's excesses.

In 2003, the Bush administration proposed tighter regulations of Fannie and Freddie, arguing that the existing oversight apparatus was inadequate, and that the agencies' combined $1.5 trillion in debt, posed a threat to the financial system. The GSEs agreed with the proposed plan, as did Representative Oxley, head of the Financial Services Committee, and Senator Shelby, chairman of the Senate Banking Committee. Who opposed it? Among others, Barney Frank, ranking Democrat on the Financial Services Committee. His response?

"These two entities...are not facing any kind of financial crisis." He added "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see of affordable housing."

Of course, Barney Frank isn't the only person who could oversee the investigation. We also have Chris Dodd, who was the single largest recipient of Fannie and Freddie's political donations from 1989 to 2008, taking in $134,000 over that period. Senator Dodd would be acting from a position of strength, given his intimate knowledge (as a "friend of Angelo") of lending practices by Countrywide Financial and indeed of that subprime lender's executive suite. It turns out Mr. Dodd is practically a real estate expert, with holdings in Ireland, Washington, D.C. as well as in his home state. Who knew?

The Times is not only concerned about the origins of the credit crisis. They also raise the "too big to fail" concern -- and rightly so. They mention the Gramm-Leach-Biley Act in 1999 which during the Clinton administration, and under the watchful eye of then-Treasury head Larry Summers, scuttled the remnants of the Glass-Steagall prohibition against deposit institutions becoming risk-taking institutions. Which Congressman is going to point the investigators into those dark corners?

There is no doubt that the United States needs to undertake a serious review of our financial institutions and the organizations charged with their oversight. Former Treasury Secretary Paulson prompted this initiative last fall, and current Secretary Geithner is right to put it on the agenda. Former Treasury Secretary David Nason has described our financial regulatory structure as having been "knit together over the last 75 years . . . We currently have five federal depository institution regulators, one federal securities regulator, one federal futures regulator and a state-based insurance regulatory system." To be blunt, it's a mess.

Though Mr. Geithner needs to pursue this overhaul, I cannot imagine that it is his first priority. I should think it is far more important that he promote the P-PIP, to clean up bank balance sheets, or oversee the auto industry bailout, or deal with the Chinese and their concerns about the dollar, or figure out how to keep Paul Volcker and Larry Summers in different wings of the White House. Mostly, Mr. Geithner needs to get credit flowing to American businesses. Since there is virtually none at present, figuring out how to keep financial institutions from leveraging their balance sheets -- always the heart of any financial disaster -- just isn't a high priority.