It is being billed as a �massive shakeup of US financial market regulation,� but don't be deceived. Treasury Secretary Henry Paulson's proposals for broad market reform are neither �timely� nor �thoughtful� [Reuters]. In fact, its all just more of the same free market �we can police ourselves� mumbo jumbo that got us into this mess in the first place.

The real objective of Paulson's so called reforms is to decapitate the SEC and increase the powers of the Federal Reserve. Same wine, different bottle. Paulson's real motive is to preempt the regulatory sledgehammer that is set to descend on the financial industry following the 2008 election. There's growing fear that President Obama will take his fire hose down to Wall Street and flush out some of the cobwebs that have collected in the market's dark corners.

If Paulson's plan is approved in its present form, Congress will have even less control over the financial system than it does now and the same group of self-serving banking mandarins, who created the biggest equity bubble in history, will be able to administer the markets however they choose without the annoyance of government supervision. That's exactly what Treasury Secretary Paulson and his pals at the Fed want: unlimited power with no accountability.

Paulson is expected to lay out guidelines and principles that are intended to help regulators supervise the financial markets. According to AFP: �The President's Working Group on Financial Markets said the current regulatory structure is working well despite calls by some US lawmakers.�

In other words, the failing banking system, the housing meltdown, and the frozen corporate bond market are all signs of a robust financial system? This may be the most ludicrous statement since �Mission accomplished.� The system is imploding and real people are being hurt by the fallout. Thirty years of industry-led lobbying has dismantled the regulatory regime which made US financial markets the envy of the world. The credibility and transparency are gone, along with the Depression era legislation like Glass-Steagall and government oversight of over-the counter derivatives instruments. Now the system is prey to all types of dodgy debt instruments, suspicious "dark pool" trading and off-balance sheet operations which reinforce the belief that cautious investment is no better than casino gambling.

"The regulatory line of sight today is by the counterparties," the official said, adding that the guidelines should be "beneficial to industry." [AFP]

How is that different from saying, �Caveat emptor"? That's not a motto that inspires confidence. Many people still naively believe that planning their retirement should not have to be a Darwinian tussle with a crafty junk-bond salesman.

Under Paulson's plan, the Federal Reserve will be granted new regulatory powers, but whatever for? The Fed doesn't use the powers it has now. No one stopped the Fed from intervening in the mortgage lending fiasco, or the ratings agency abuses or the off-balance sheet shenanigans. They had the authority and they should have used it. The Fed knew everything that was going on -- including the mushrooming sales of derivatives contracts which soared from under $1 trillion in 2000 to over $500 trillion in 2006 -- but they decided to cheerlead from the sidelines rather than do their jobs. The fact is, they were worried that if they got involved, they might upset the gravy train of obscene profits that was enriching their bankster friends.

Former Fed chief Alan Greenspan used to croon like a smitten teenager every time he was asked about subprime loans or adjustable rate mortgages. And, as New York Times columnist Floyd Norris points out, "[Greenspan] praised the growth in the derivatives market as a boon for market stability, and resisted calls to use the Fed�s power to increase regulation.� Of course, he did. It was all part of Maestro's �New Economy�: trickle-down Elysium, where the endless flow of low interest credit merged with financial innovation to create a Reaganesque El Dorado. There are no regulations in Eden; anything goes and to heck with the public; they can fend for themselves.

Now its Paulson's job to keep the neoliberal flame lit long enough to make sure that government busybodies and bureaucratic do-gooders don't upset the applecart. That means concocting a wacky public relations campaign to convince the public that Wall Street is not just a pirate's cove of land-sharks and bunko artists, but a trusted ally in maintaining a strong economy through vital and efficient markets.

The Times' Norris summed up Paulson's sham reforms like this: �The plan has its genesis in a yearlong effort to limiting Washington's role in the market. And that DNA is unmistakably evident in the fine print. Although the proposal would impose the first regulation of hedge funds and private equity funds, that oversight would have a light touch, enabling the government to do little beyond collecting information -- except in times of crisis. The regulatory umbrella created in the 1930s would grow wider, with power concentrated in fewer agencies. But that authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis." [�In Treasury Plan, a Reluctant Eye over Wall Street,� Floyd Norris, New York Times]

What nonsense. The house is on fire and hyperventilating Hank is still wasting our time with this rubbish. The real problem is that Paulson and his buddies at the Federal Reserve think of the financial system as their personal fiefdom, so they refuse to loosen their hoary grip even though the economy is listing starboard and the water is flooding into the lower decks.

Once again, the New York Times: �All the checks and balances in the plan reflect the mindset of its architect, Treasury Secretary Henry Paulson, who came to Washington after a long career on Wall Street. He has worried that any effort to substantially tighten regulation could hamper the ability of American markets to compete with foreign rivals.�

No one elected Paulson to do anything. He has no mandate. He is an industry rep who has worked exclusively for a small group of wealthy investors who have put the entire country at risk with their toxic mortgage-backed bonds, their reckless Ponzi-type speculation, and their off-book chicanery. Paulson should be removed immediately and returned to his wolf's lair at G-Sax. If Bush is serious about straightening out Wall Street, then bring in Eliot Spitzer. He's available. And he'll do what it takes to clean house, that is, put a truncheon-wielding robo-cop in every trading-pit at the NYSE, and dispatch government accountants to every office of every CFO, making sure they have a Big Red Pen in one hand and a Taser in the other. That's the only way to get the attention of the bandit-class.

�I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil,� says Paulson.

Paulson is wrong. The current turmoil is all about the lack of regulation and he'd better prepare himself for some big changes. The pendulum is already in motion and tighter regulations will soon follow. There needs to be an accounting process for all transactions and capital requirements for every financial institution that creates credit. No exceptions. All of these businesses pose a real danger to the overall system and, therefore, must conform to clearly articulated and strictly enforced rules; no off-balance sheet operations, no dark pool trading, no unregulated derivatives contracts, no level 3 assets, no �mark to model� garbage bonds where CFOs unilaterally decide what they are worth by picking a number out of a hat.

It's time to restore order to the markets so retirees and working class families can feel safe investing in their futures. They are the ones who are most hurt by Wall Street's trickery.

Paulson's plan is a nonstarter. The era of sandbagging, supply-side banditry is over. Good riddance.