Presidential hopeful Sen. Barack Obama called for an overhaul of the "balkanized" regulatory system for the financial markets yesterday, and proposed a $30 billion stimulus plan that would provide $10 billion of additional private-activity bond volume capacity so states could issue mortgage revenue bonds for the refinancing of subprime mortgage loans as well as loans to first-time homebuyers.
Obama made the proposals in a speech at Cooper Union for the Advancement of Science and Art in New York.
The additional private-activity bond capacity is needed because demand for mortgage revenue bonds is "oversubscribed" and MRBs are being rationed to respond to affordable housing needs, according to a fact sheet distributed by the Illinois Democrat's campaign. Current tax law prohibits the issuance of tax-exempt bonds for existing homeowners, and Obama's plan appears to include a temporary lifting of that restriction. An Obama spokesman could not be reached by press time.
Obama said that it is time for the federal government to "revamp" the financial markets' regulatory framework by streamlining overlapping and competing regulatory agencies.
"Reshuffling bureaucracies should not be an end in itself," he said. "But the large, complex institutions that dominate the financial landscape do not fit into categories created decades ago. A streamlined system will provide better oversight, and be less costly for regulated institutions."
Obama's remarks, which included a call for a "financial market oversight commission" to monitor risks in the financial markets, follow similar comments made by House Financial Services chairman Barney Frank, D-Mass., last week, and comes as the Bush administration is developing a blueprint for overhauling the regulatory system for the financial services sector. Market participants believe the administration may be planning a larger regulatory role for the Federal Reserve, which has played a lead role in helping to quell turmoil in the financial markets.
It not clear what role the Securities and Exchange Commission, which did not appear to have much of a role in addressing the turmoil, would have under any of the proposals.
Obama blamed much of the current credit crunch on Washington lobbyists and politicians who helped dismantle the previous regulatory framework for the telecommunications, electricity, and financial industries and said that any changes to the regulatory system should be developed through "sound analysis and public debate."
He also urged short-term relief for the mortgage crisis through legislation introduced earlier this month by Senate Banking chairman Christopher Dodd, D-Conn., and Frank that would, among other things, allow the Federal Housing Administration to provide as much as $300 billion in mortgage guarantees.
Among a slew of policy proposals listed on Obama's fact sheet, the only one that directly affects municipal securities issuance was Obama's pledge for $10 billion of additional PAB capacity for MRBs. But he also called for an additional $10 billion in relief for state and local governments hardest hit by the housing downturn.
The fact sheet suggested that the additional $10 billion would assist states with projected budget shortfalls for the next fiscal year, some of which will have to cut programs or raise taxes to meet balanced budget requirements.
Sen. Hillary Rodham Clinton of New York, Obama's rival for the Democratic nomination, unveiled her own $30 billion stimulus plan on Monday, which appears to be similar to Obama's in providing aid to localities hurt by the credit crunch. Meanwhile, Arizona Sen. John McCain of Arizona, the presumptive Republican nominee, said this week that he believed in limited government intervention and criticized expensive government bailout proposals.
