Robert K. Steel leans forward, speaking in a rapid, excitable burst about the powers that a superregulator might wield over Wall Street one day.
“It will have the license to go everywhere: private equity funds, investment banks, hedge funds,” Mr. Steel, the under secretary of the Treasury for domestic finance, said in an interview last week.
By his words and demeanor, Mr. Steel could be mistaken for a midlevel policy wonk — someone hoping to let a little sunlight disinfect the dark corners of the financial world.
In fact, he is a former vice chairman at Goldman Sachs, the big investment bank. And in the last two years, Mr. Steel has been co-chairman of one commission that claimed heavy-handed regulation was stanching financial innovation and another that argued that hedge funds could police themselves.
His apparent conversion to the merits of regulation illustrates how the laissez-faire bones of the Bush administration have been rattled by the government-brokered rescue of Bear Stearns and the trauma of the credit crisis.
The new industry watchdog that Mr. Steel is trumpeting is the cornerstone of Treasury Secretary Henry M. Paulson Jr.’s controversial effort to revamp the regulatory apparatus of the nation’s financial system.
In truth, the plan may well fail to become law because some of its prescriptions, like diluting the power of the Securities and Exchange Commission, have drawn fire from those who have long believed that the Treasury has an antiregulatory bias.
In Washington bureaucratese, the entity is called a market stability regulator, but there is nothing dull about its mandate. The regulator would pass judgment on the capital levels, trading exposure and leverage of Wall Street’s most sophisticated institutions.
“When you are driving fast down a slippery road, sometimes a regulator needs to tap lightly on the brakes to get you to slow down,” Mr. Steel said.
But to many on Wall Street and on Main Street, the car has already crashed. Mr. Steel’s enthusiasm may represent less a philosophical conversion than an acceptance of raw political facts.
“Everybody likes to say I told you so, but we told them they were excessively deregulatory,” Representative Barney Frank, the Democratic chairman of the House Financial Services Committee, said of the Bush administration. “I very much welcome this affirmation by Paulson and Steel that we need to regulate risk in ways that we haven’t.”
Such a suspicion is in many ways rooted in Mr. Steel’s own promarket sympathies, which were on display when he was co-chairman of the United States Chamber of Commerce’s inquiry into the country’s regulatory structure. He gave up that position when he joined the Treasury in 2006.
“The blueprint is an attempt to weld together two contradictory ways of thinking,” said Damon Silvers, an associate general counsel for the A.F.L.-C.I.O. “One is what Treasury has learned over the past year, and the other is the pre-existing deregulatory agenda coming out of the business community.”
Mr. Paulson disputes the notion that the plan or Mr. Steel is antiregulatory in the slightest. “Bob has never been antiregulation,” Mr. Paulson said in his hoarse voice. At Goldman, he said, Mr. Steel was an effective liaison with regulators and was often “on the point of the spear,” when it came to dealing with them. As for the plan’s broad, if not self-defeating ambition, he is blunt. “I think it will stand the test of time,” he said.
