Democrats dismiss White House financial reforms as 'wild pitch'

WASHINGTON (CNN) -- Top Democrats Monday dismissed the Bush administration's plan to overhaul the nation's financial regulatory system as inadequate, with one leading senator calling the proposals a "wild pitch."

Sen. Chris Dodd, the chairman of the Senate Banking Committee, said he "welcomed the idea" of updating the way bodies such as the Federal Reserve Board oversee the U.S. economy.

But the Connecticut Democrat and former presidential candidate said the plan laid out by Treasury Secretary Henry Paulson "doesn't relate to the issues they are trying to confront."

The administration's plan would expand the powers of the Federal Reserve, create a new regulator to oversee the mortgage industry and combine some existing agencies.

"This is opening day in baseball, so let me use a baseball analogy: I would call this the wild pitch," Dodd said. "It's not even close to the strike zone."

He refused to say whether he supported any elements of the Paulson plan. Watch Paulson detail his proposal »

"There are places you can argue that we're either unregulated or under-regulated, there are places we're over-regulated or duplicative. Clearly some serious thought needs to go into it," he said, before adding: "For me to start cherry-picking here and identify one provision or another is not something I'm going to engage in."

Senate Majority Leader Harry Reid, D-Nevada, was somewhat more conciliatory, calling the plan "a step in the right direction." But he said the administration had to be willing to compromise on specifics.

"We can't have this as they have done in the past, their way or no way." See reaction from CNN correspondents and economists »

And he said the proposal would do little to help solve existing problems.

"The White House should direct their attention to what needs to be done now," he said.

Rep. Barney Frank, a Massachusetts Democrat who leads the House Financial Services Committee, said in a statement released before Paulson's speech that the proposals "narrowed, albeit by no means removed, the differences between his position and that of many Democrats."

Both Democratic presidential candidates laid out proposals last week for updating regulation of the financial markets.

On the campaign trail in Lancaster, Pennsylvania, Sen. Barack Obama was dismissive of the administration's plan, laying the blame for the mortgage crisis at President Bush's door. Watch what Obama says about the proposal »

"He is introducing some consolidation and streamlining of the regulatory system on Wall Street, but he is not making the regulations any tighter. He is not preventing the predatory lending that is responsible for a lot of these problems," Obama said.

Sen. Hillary Clinton, Obama's rival for the nomination, said the administration's plan "comes late and falls short."

"No amount of rearranging the deck chairs can hide the fact that our housing and credit markets are in crisis. And they're sinking deeper every day. Every day we fail to take aggressive action is a day lost," she said Monday at a campaign stop in Harrisburg, Pennsylvania.

Presumptive Republican nominee Sen. John McCain welcomed what he called "long overdue regulatory reform," but also said more needs to be done to ease the current situation.

"While these reforms are likely to help prevent a recurrence of this financial debacle, a higher immediate priority is addressing the current economic pain being felt by too many Americans," he said.

"Republicans and Democrats need to work together because many people are hurting and we owe the American people help during this crisis."

One of the most dramatic changes of the plan would extend the powers of the Federal Reserve -- designed to regulate the commercial banking industry -- to oversight of virtually the entire financial industry.

That change would make the Fed the first responder to a potential financial crisis. Currently, several agencies and commissions have oversight over various parts of the industry, but none has the broad authority.

The proposals have been in the works since June -- two months before the current subprime mortgage crisis began affecting financial markets, Treasury Department spokeswoman Michele Davis said last week.

Nevertheless, the proposed change would help the oversight and regulatory system catch up with the events of the last two weeks, when the Federal Reserve intervened to facilitate the sale of failing brokerage Bear Stearns to JPMorgan Chase & Co.

Some of the proposals -- broadening the focus of a presidential working group on financial markets and tightening oversight on mortgage originators -- are classified as short-term recommendations.

Davis said the department does not expect to finish the longer-term proposals before President Bush leaves office in January. Instead, she said, Paulson is trying to start the process of creating "a better regulatory framework so we're in better shape next time" there's a rough patch in the economy.

The banking and financial industry regulation structure has been developed over decades, from the establishment of the national bank charter in 1863 to the creation of the Federal Reserve system in 1913, to recent changes made in response to other crises.

The ever-expanding complexities of global markets have largely outgrown some of the structure's component parts, creating weaknesses and redundancies.

Since his appointment as Treasury chief, Paulson has warned that heightened regulation would hinder American financial markets competing with maturing foreign markets.

Nearly all the proposals will require the approval of Congress, where Democrats are at work on their own proposals. E-mail to a friend

CNNMoney.com's David Ellis contributed to this report.

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