Obama takeover augurs financial regulator shakeup

By Kevin Drawbaugh

WASHINGTON (Reuters) - President-elect Barack Obama and Democrats in Congress will take over the government this month with big plans to overhaul U.S. financial regulation and a surge of momentum behind them.

From the mortgage meltdown to the Bernard Madoff scandal, the financial system is in crisis. Critics are hammering the federal bureaucrats who are supposed to manage the economy, police Wall Street and protect investors.

Some of the agencies under fire have familiar names -- the Fed, Treasury, SEC, FDIC; some less so -- CFTC, OCC, OTS.

All are under scrutiny by reformers who are talking about shutdowns, combinations and reshaping basic missions.

"We're going to have a significant shake-up," said Norman Ornstein, a resident scholar at the American Enterprise Institute, a Washington, D.C., policy think tank.

Obama, who will be sworn in on January 20, has moved quickly in nominating a new Treasury secretary and chiefs for the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

He has called for adoption of "new common-sense rules of the road that will protect investors, consumers and our entire economy from fraud and manipulation by an irresponsible few."

The early signals point to "a very new and different and activist era," Ornstein said.

Of course, Obama is not the first president to target this issue. The streets of Washington are littered with bold blueprints to reform the financial oversight bureaucracy.

Past efforts have crumpled, victims of agency turf battles and attacks from industry lobbyists defending the status quo.

Even 2002's post-Enron Sarbanes-Oxley reforms mainly confined to limited corporate governance and auditing issues. This time around, more basic changes look likely.

YEARS OF SCANDALS

Americans dealing with a deep recession are looking back on years of business scandals and soaring pay packages for a corporate elite that seems detached from economic reality.

The government is greatly expanding its role in the economy. By bailing out the billionaire financiers who drove the financial system to the edge of disaster, the Bush administration and Congress are giving all taxpayers a stake in the financial services industry and its supervision.

Banking giants once emblematic of free-wheeling capitalism, such as Goldman Sachs, are now voluntarily seeking to become more tightly regulated bank holding companies.