ALL BUSINESS: Risks of Dismantling SEC

The plan calls for the merger of the SEC and the Commodity Futures Trading Commission. Of itself that isn't a bad idea because many financial futures track securities products.

More troublesome, though, is that the Treasury endorsed the CFTC's use of so-called principles-based regulation, in which conceptual guidelines are used instead of specific rules. The government also said the SEC, which follows a "rules-based" approach, should apply the principles approach to its oversight of stock exchanges. Critics say that opens regulation up to interpretation.

The plan also calls for more reliance on self-regulatory bodies, modeled after groups such as the Financial Industry Regulatory Authority the watchdog for securities firms for oversight and rule making. In making the case for establishing a self-regulatory framework for the investment advisory industry, the proposal says that would "be more cost-effective than direct SEC regulation."

The plan gives no clarification on what practices need to be stopped or how to make the system more transparent. It also doesn't discuss issues like improved enforcement or how to curb risky financial products like derivatives that have been the root cause of the financial turmoil seen in the last year.

The plan won immediate praise from industry trade groups that would benefit from any easing of regulation. Among those supporters are the Wall Street-focused Securities Industry and Financial Markets Association and the Business Roundtable, which represents CEOs at many of the nation's largest companies.

The SEC gave a more ambiguous response. "The proposed consolidation of responsibility for investor protection and the regulation of financial products deserve serious consideration as a way to better address the realities of today's markets," SEC Chairman Christopher Cox said in a statement.

Cox may see the writing of his legacy on the wall the SEC under his tenure has been considered largely ineffective, with few significant changes coming since the former Republican congressman took the agency's helm in 2005. If this plan goes though, he could be the last chairman of the SEC as we know it.

The man who Cox replaced, former chairman William Donaldson who served from 2003 to 2005, says modernizing and reorganizing the financial system make a lot of sense. But he warns against any quick dismantling of the SEC, especially in a proposal where the "devil is in the details," he said this week.

He's got that right this plan is a dressed up way to bolster a hands-off approach to regulation. Given what has happened in the financial world in recent months, it doesn't seem like the right time to give anyone a longer leash.

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