A Look at Hank Paulson

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It may not have been the most titillating news of the week, but the Law Blog understood the importance of Saturday’s WSJ story on the new Democratic nominees at the SEC, which has been operating with just three Republican commissioners since January. As reported, the two lawyer nominees — Luis Aguilar and Elisse Walter — “could smooth the way for dozens of other nominations bottled up in Congress” and spark long-awaited rule changes in the wake of the subprime mess and credit crunch. Last month, SEC Chairman Chris Cox said the SEC will likely vote by the summer on new rules guiding credit-ratings firms.

But if Treasury Secretary Hank Paulson has anything to say about, not only will that vote never happen, but Cox & Co. could be out of a job come summertime. Paulson’s sweeping plan to reorganize the patchwork of U.S. financial regulation — reported here and here on the front page of today’s WSJ — contains a recommendation for merging the SEC, which was created in 1934 to re-establish public trust in the post-Depression markets, with the Commodities Futures Trading Commission, created in 1974 to regulate commodities futures and options markets.

Why join the two commissions? As the theory goes, the fact that the SEC and CFTC have overlapping jurisdictions has led the “regulators to court the regulated.” Says Hal S. Scott, professor of international financial systems at Harvard, “It’s not a good idea to have people competing with each other, particularly if they’re competing in laxity.”

But Bart Chilton, the Commissioner of the CFTC objects. “I think most Americans would prefer that government do our jobs and that means doing everything possible to cauterize the subprime mess before performing major surgery on a regulatory system, parts of which are still very healthy,” he said.

LB’ers: Are there any securities regulation mavens out there? Would Paulson’s plan to merge (or eliminate) the SEC be akin to an overreaction to the current financial crisis?