Editorial: One more argument for increased oversight (Burlington Free Press)

The news about troubled financial firms that slammed the stock market Monday is one more exhibit in an already strong case for aggressive oversight of our financial services industry.

The U.S. Treasury and Federal Reserve decided not to prop up Lehman Brothers' with taxpayer money, but even then the securities firm's filing for bankruptcy protection will likely affect everything from the price and availability of home mortgages and other loans, to retirement and college savings invested in the financial markets.

State Treasurer Jeb Spaulding says the state pension fund has suffered with this year's market downturn, although there is no threat to the benefits promised to public employees.

The news of Lehman's bankruptcy and the sale of another Wall Street mainstay Merrill Lynch to the Bank of America sent the Dow Jones Industrials Average down more than 500 points Monday.

The $50 billion sale of Merrill Lynch to the Bank of America involves no tax dollars. Bank of America's financial base includes the federally insured deposits in its retail banks. That's increased risk for an institution that ordinary Americans trust to keep their hard-earned money safe.

Also in trouble is AIG, which owns Stowe Mountain Resort. New York regulators allowed the nation's largest insurance company to borrow $20 billion. The New York Times reported the Federal Reserve is helping to arrange a $70 billion bank loan to keep the company afloat.

Monday's news follows on the recent government bailout of mortgage companies Freddie Mac and Fannie Mae, and the forced sale of Bear Stearns to J.P. Morgan Chase with federal guarantees that reduced the risk of losses.

Meanwhile, top executives of failed institutions too often stand to walk away with the millions in bonuses awarded during the time that the companies were engaging the excessive risk that laid the groundwork for their own downfall.

For their part, officials at the Federal Reserve and Treasury appear to take an ad-hoc approach to financial crisis, figuring out what to do as each emergency unfolds, adding more uncertainty to the markets and the economy.

The role of federal regulators is that much more important since deregulation that globalized the financial services industry has sharply reduced the powers of state regulators who might be more in tune with the interests of people in a small state like Vermont.

The idea that government must step in to prevent a breakdown of the entire system -- the "too big to fail" theory -- carries with it the obligation for these institutions to submit themselves to regulatory oversight to prevent the kind of behavior that could end up costing billions of dollars, a cost that in the end is borne by ordinary Americans.