Congress considers legislative response to latest financial institution crisis

[JURIST] Members of the US Congress spoke out about regulatory changes and investigations following a stock market drop propelled by Lehman Brothers' Chapter 11 bankruptcy filing and the sale of Merrill Lynch [AP report] on Monday. Speaker of the House Rep. Nancy Pelosi (D-CA) reiterated [press release] plans for a new economic stimulus package designed to "create jobs and address some of the most immediate consequences of the Administration’s serious mismanagement of our economy." Senate Banking, Housing and Urban Affairs Committee Chairman Sen. Chris Dodd (D-CT) [official website] said [statement text] Monday that the Banking Committee will continue to probe regulatory oversight and seek legislative solutions "strengthening the housing sector, developing a second stimulus package, and restructuring the regulation of the financial sector.” Ranking Republican member Sen. Richard Shelby (R-AL) [official website] added [RTTNews report] that the Banking Committee will conduct a "thorough review" of the events leading to the latest crisis. The Banking Committee [official website] postponed a hearing scheduled for Tuesday with Treasury Secretary Henry M. Paulson, Jr. [official profile]. Speaking at a White House press briefing [transcript] on Monday, Paulson asserted that institutional cooperation will provide short-term solutions as regulatory changes are made:

[I]n the intermediate and longer term, clearly [...] we're going to need major regulatory changes, and I've spoken a lot about that. And we could use additional authorities to deal with non-bank financial institutions. But again, that's going to take longer for Congress to do. And right now we're working with the tools we have, and what you're finding is that the Fed, the SEC, Treasury, the FDIC -- we're all working together and we're going to do what's necessary to protect this system with the tools we have.
Dodd has pushed to reschedule Paulson's hearing, originally covering "Recent Regulatory Actions Regarding Fannie Mae and Freddie Mac," to address this week's developments. AP has more.

Paulson said Monday that "the root of the [financial institution] problem lies in this housing correction." In July, Congress passed the Foreclosure Prevention Act of 2008 [HR 3221 materials; JURIST report], designed to address problems from the country's so-called "sub-prime mortgage collapse." That bill gave municipalities grants to buy and redevelop foreclosed properties and allowed the federal government to provide additional financial backing to the publicly-supported Fannie Mae and Freddie Mac mortgage companies. Last week, the mortgage giants were placed into a conservatorship [CNNreport] under the Federal Housing Finance Agency [official website].


 

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