Paulson-Bernanke plan would give the fed broad new powers.(Inside Track)(Henry Paulson, Ben Bernanke, Federal Reserve Board )

On Thursday, July 10, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testified before the U.S. House of Representatives' Committee on Financial Services. The backdrop for the committee meeting, of course, is the ongoing turmoil in U.S. and global financial markets, highlighted by the Federal Reserve's unprecedented intervention to prevent the failure of giant investment bank Bear Stearns, and more recent worries that the two government-sponsored mortgage lending companies Fannie Mae and Freddie Mac are in danger of implosion.

The time has come, Paulson and Bernanke informed the House committee, to "consolidate" the regulation of investment banks and other comparatively unregulated financial entities, to bring them under a stringent web of federal regulations and bailout guarantees similar to those long endured by commercial banks. "Congress may wish to consider whether new tools are needed for ensuring an orderly liquidation of a systemically important securities firm that is on the verge of bankruptcy, together with a more formal process for deciding when to use those tools," Bernanke proposed. "Tools," of course, is federalese for "powers," and Secretary Paulson, reaffirming his commitment to the U.S. Treasury's "Blueprint for a Modernized Financial Structure" released last March, was not shy as to what some of these "tools" might entail:

 
   Americans have come to expect the Federal Reserve ...