WASHINGTON — A heavier federal hand is reaching into American life as politicians in both parties demand an overhaul of government financial regulation and more protection for homeowners in the face of mortgage woes and a weakening economy.
The rush to regulate also was apparent in the recent crackdown on airlines, resulting in thousands of grounded flights for safety inspections as the government beefs up its enforcement of existing laws. There have been mounting proposals for tougher government rules to address climate change. High corporate salaries have come under attack on Capitol Hill, as have oil industry profits and rising food costs.
Advocates of more aggressive government action see it as a boon to ordinary Americans struggling in hard economic times. Those favoring a lighter federal touch worry that the pendulum will swing too far toward regulation, stifling economic efficiency.
"There's always that danger," said Jack Kemp, former New York congressman, housing secretary in the first Bush administration and 1996 Republican vice presidential nominee. "We have to be concerned about over regulation."
But even the conservative Kemp, an economic adviser to GOP presidential candidate John McCain, has come down on the side of more federal involvement to help struggling homeowners.
Although President Bush a month ago urged Congress not to overreact to the housing crisis, he has since extended the Federal Housing Administration's reach and empowered mortgage-finance giants Fannie Mae and Freddie Mac to make up to $200-billion more in loans.
Treasury Secretary Henry Paulson also unveiled a "blueprint" to increase and consolidate regulation of the financial industry and give more power to the Federal Reserve.
Allen Sinai, chief global economist for Decision Economics, said the calls for more regulation are a response to anger on the part of ordinary Americans at seeing the value of their homes decline or facing foreclosure and an inability to refinance, while a big investment bank like Bear Stearns Cos. can be helped by the government.
"Our society does often over-respond to such anger with more regulation, and it has interfered with the free working of the market," Sinai said. "We need to get some balance — but we need a changed regulatory framework in the financial arena."
President Ronald Reagan, championing a smaller and more hands-off government, led an effort in the early 1980s to slash regulations and transfer public functions to the private sector. This slackening of regulation continued under the first Bush presidency and the administrations of Democrat Bill Clinton and the current President Bush as the economy kept expanding — except for recessions in 1990-91 and 2001 — and more and more people obtained homes.
But that has all changed.
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is the author of a proposal — headed for a vote before his panel in the coming week — that would create a new insurance fund guaranteeing up to $300-billion in refinanced mortgages. Backers say it could help up to 2-million people.
Could Congress be overreaching? "There's a theoretical danger," Frank said. But, "I can't see it happening," given the seriousness of the current situation.