By Joseph N. DiStefano

Posted on Wed, Jul. 29, 2009

Trying to divine how President Obama's agenda for toughening financial-industry rules is going to survive the turf wars between the Federal Reserve, regulators, and industry groups, I sorted last week's statement from U.S. Rep. Paul Kanjorski (D., Pa.), a key Democrat from a conservative district and No. 2 to Rep. Barney Frank (D., Mass.) on the House Banking Committee.

Kanjorski, whose district includes Wilkes-Barre, is famous for understanding this stuff better than the average member of Congress, and for staying on the fence until he's heard from all sides, which guarantees lots of attention from lobbyists.

He came down off the fence, mostly, and declared what he likes and doesn't.

According to Kanjorski, parts of the administration's plan are like Goldilocks' porridge:

Too hot - "I must reiterate my deep and profound concerns about the selection of the Federal Reserve as the primary entity in charge of systemic risk. I believe that we need someone with real political accountability in this role, like the Treasury secretary."

Too cold - "Rating agencies turned horse manure into fool's gold. We must do more, much more" than the administration proposes, to watchdog Standard & Poor's and Moody's and their peers. "We must consider radical reforms," like maybe taxing securities trades to fund oversight. That would get Wall Street's attention.

Just right - "I am pleased that the administration calls for establishing an Office of National Insurance, an idea I first originated," though it's still not clear if this agency will step on rogue operators like the folks who wrecked AIG, or just keep score.

Also, "I commend efforts to regulate the advisers of hedge funds [and] derivatives and swap markets. These reforms are long overdue."

Kanjorski didn't declare himself on one high-profile Obama proposal, a plan for a consumer financial-protection agency, which the Fed is resisting, because Fed Chairman Ben Bernanke wants to keep that power, which his predecessor, Alan Greenspan, refused to use.

On this issue Kanjorski lines up with his congressional superior - on the fence: "Chairman Frank has wisely determined that we need to take some additional time to thoroughly understand how the proposed consumer-protection changes would be implemented," Kanjorski told me.

Maybe Frank and Kanjorski will decide the Fed is too independent to protect all of us from systemic risk, but not too independent to protect consumers.