What happened
Treasury Secretary Henry Paulson on Monday proposed the most sweeping overhaul of the financial regulatory system since the Great Depression. The plan would greatly increase the Federal Reserve’s authority to oversee financial markets, and seek to reduce the number of regulatory agencies doing the job now. But critics, including some powerful Democratic lawmakers and lobbyists for banks, vowed to fight it, signaling that debate in Congress should last into the next presidential administration. (The New York Times, free registration)

What the commentators said
“No bureaucratic deck chair goes unmoved” under Paulson’s plan, said The Wall Street Journal in an editorial. But this attempt to give more power to “the same regulators who failed to use the power they already have to prevent the current crisis” has little chance of becoming law. “Fortunately, the real reformer”—Adam Smith and his “relentless market discipline”—“is already hard at work, changing the financial system right before our eyes,” and “building a safer, more conservative financial system without any new regulation at all.”

Paulson’s fix is certainly “an improvement over the dysfunctional system we now have,” said Investor’s Business Daily in an editorial. Crisis after crisis in recent decades has “exposed glaring weaknesses in our postwar financial regulations.” But the government was a big part of the problem as the nation sank into the mortgage crisis, and it would be “a huge, costly mistake” if Treasury’s reforms only encouraged “a new wave of meddling” by Congress instead of simply letting the markets work.

“Free-market ideologues” are precisely the ones who got us into this mess, said Clay Risen in The New Republic. The Bush administration “stocked” what, admittedly, is a “patchwork” of regulatory agencies with people “who thought their job was to do as little as possible to bother Wall Street.” And Paulson’s big plan to create a new “framework” isn’t meant to get the nation out of the crisis this lack of oversight permitted—he’s just trying to tap into the rampant desire for change to push the same deregulation of the financial world he has sought all along.