Treasury To Release Analysis of Meltdown

The U.S. Treasury is set to release a report today on what went wrong in the collapse of the subprime mortgage market last year and provide initial indications of how the country's financial regulatory framework should be revamped, according to sources familiar with the announcement.

The report, which is the result of a seven-month effort by the President's Working Group on Financial Markets, will signal a need for greater transparency and other reforms to prevent the kind of sudden downturn that has struck credit markets in recent months -- including the way mortgage lenders package and resell loans on Wall Street.

Abrupt dislocations in those markets have triggered a wider slowdown in the U.S. economy and mounting predictions of a recession.

Specific recommendations from Treasury are expected at a later date. These could have a sweeping impact on major segments of Wall Street, from the way mortgages are securitized to the role of credit-rating firms, which evaluate and give a score to such securities.

The Working Group's report is especially significant because it is a collaboration of the government's top economic policymakers, including Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Christopher Cox.

Robert Steel, undersecretary for domestic finance, said a press conference scheduled by Treasury for today would release the results of the President's Working Group efforts. Other details were discussed by two people familiar with the matter who spoke on condition of anonymity because they were not authorized to talk about the report.

The group was tasked by President Bush with reexamining the reasons behind the subprime mortgage collapse and, in particular, the role played by credit-ratings agencies, such as Standard & Poor's and Moody's.

Since Treasury does not oversee rating firms, any regulatory recommendations for such companies would have to be approved by Congress or the SEC first.

Treasury officials have said in past interviews they expect the practice of rating securities and firms to change.

"There will probably be a lot more scrutiny, in a sense, a lot more analysis being done of the underlying credit. And that's probably a good thing," said Phillip Swagel, Treasury's assistant secretary for economic policy in an interview on C-Span in early September.

The President's Working Group on Financial Markets was created after the 1987 stock market crash to coordinate responses to financial crises. But before Paulson took office, the group had rarely met.

Paulson has used the group to hold regular meetings between the heads of four key agencies: Treasury, the Fed, the SEC and the Commodity Futures Trading Commission. He also pushed the group to conduct exercises that would prepare the group for financial crises.