Last week, as Wall Street was flailing over the collapse of one of its largest investment banks, Rep. Barney Frank (D-Mass.) took a podium and told members of Boston's U.S. Chamber of Commerce precisely what they didn't want to hear. Congress, Frank suggested, should move to subject investment firms and hedge funds to the same regulations and oversights that currently target commercial banks.
A year ago, the prospect of empowering a federal super-regulator to intervene across financial markets -- regardless of the corporate model -- might have been unthinkable. After all, the freedom of investment companies, hedge funds and other non-bank institutions to dabble in highly unregulated speculative transactions has generated enormous profits for Wall Street firms and shareholders alike.
But with the economy teetering somewhere near the edge of recession -- and with some of those same Wall Street deals propelling the decline -- Washington's policy-makers have begun a panicked reexamination of the nation's banking laws not seen in decades.