Wall Street needs new regulation - Schumer

Sen. Charles Schumer, D-N.Y., said Wednesday he believes the credit crisis may get worse and that regulatory failings helped fuel the problems rocking the economy.

The chairman of the Joint Economic Committee presided over a hearing exploring the problems in the credit markets and what changes in regulation were necessary to avoid future market disruptions. Witnesses included former Federal Reserve Chairman Paul Volcker and experts from a number of leading think tanks.

Schumer said he shared the hope of economists that "the worst of the credit crisis is behind us, but I am not convinced that it is over."

Schumer's remarks echoed a proposal by Treasury Secretary Henry Paulson to update how the nation's financial sector is supervised, including far more centralized regulation.

"In my view, this credit crisis is as much a failure of regulation as it is a failure of the marketplace," Schumer said. "We have a 21st century global financial system, but a 20th century national set of financial regulations. That needs to change soon."

Schumer criticized the administration and Republican members of Congress who argue that government should do everything possible to avoid interfering with markets.

"The market does not solve all problems by itself and neither does the government," he said.

Volcker suggested that the failures in the credit markets were widespread, ranging from regulation to basic economic problems such as the rising U.S. trade gap. He endorsed the idea of the Fed becoming the principal financial regulator, although he cautioned that the central bank "is not equipped to do it now."

He said a greater oversight role for the Fed would require the creation of a new position filled by an official who is held accountable. But he suggested that the needed regulatory changes will not be easy to accomplish.

"The life of a regulator is not a happy one. When things are going well no one wants to be regulated," he said. "When things go bad, everyone asks, 'Where were you?