By Stephen Collinson
WASHINGTON, US - US Treasury Secretary Timothy Geithner is to testify before the Congress Thursday to defend President Barack Obama's push to reform financial market rules in the most sweeping overhaul since the 1930s.
At the morning hearing before the Senate Banking Committee, Geithner will back up Obama's aim of avoiding future meltdowns and purging the finance system of lax oversight, greed and huge debts.
"We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind," Obama said upon announcing the reforms on Wednesday.
"My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression."
The reforms, which must be approved by Congress, will inject the government deeper into the finance sector in a bid to tame the recklessness that saw a mortgage meltdown tip the world into deep economic crisis.
They are the latest attempt by the Obama administration to heal the US economy and ensure it never again pitches into such turmoil.
The regulatory reforms join a massive array of housing, banking, mortgage and credit card reforms, a 787-billion-dollar stimulus package and managed auto firm bankruptcies adopted by Obama since taking office in January.
In a speech at the White House, Obama blamed a "culture of irresponsibility," a Great Depression-era regulatory system, reckless executive compensation, excessive debt and markets awash in new and risky financial products for sparking the crisis.
"An absence of oversight engendered systematic, and systemic, abuse," Obama said.
The proposals would give the Federal Reserve expanded powers to oversee regulation on all finance firms or banks that pose a significant systemic risk to the wider financial infrastructure.
They would introduce new discipline and transparency into financial markets and would enable investors to better ride out the failure of one or more large financial institution. The reforms will include the creation of a Consumer Financial Protection Agency to shield Americans from the extremes of credit, savings and mortgage markets.
The Office of Thrift Supervision - a federal bank regulator and supervisor - will be abolished under the reform proposals, officials said.
Some Obama critics, hoping for a top-to-bottom reconstruction of the tainted financial system, complained the overhaul did not go far enough, others said it would require too much government intervention in the economy.
Independent Senator Bernie Sanders called for greater action. "We need to enact a national usury law so that big banks can't charge outrageous interest rates and sky-high fees," he said. "If a bank is too big to fail, it is too big to exist."
Eric Cantor, a leading Republican in the House of Representatives, criticized Obama's plans.
"We need smart regulation, not necessarily more regulation," he said.
"The administration has placed too much emphasis on government and too little on people."
The US Chamber of Commerce said the plan had several positive recommendations, but simply added to "the layering of the system without addressing the underlying and fundamental problems."
The non-partisan Financial Services Forum though described the proposals as "comprehensive and responsive" to deficiencies in the current system.
Barney Frank, chairman of the House Financial Services committee, predicted swift congressional action on the plans.
"I am fairly optimistic that we are going to have a product that looks a lot like the president wants before the end of the year."
Obama took aim at exploitative asset products and mortgages offered in those markets that lured American investors into trouble.
"These schemes were built on a pile of sand," Obama said.
Officials said a "national bank supervisor would be set up under the plans to supervise and regulate all federally charted depository institutions and federal branches and agencies of foreign banks."
Obama is also proposing stringent capital and liquidity requirements for the largest and most "interconnected" financial firms.