Treasury Secretary Henry Paulson says the Federal Reserve should have more power to regulate Wall Street. He’s the first in the Bush administration to endorse such an idea, says The Wall Street Journal on A1.

In keeping with Rupert Murdoch’s known desires, the story must be one of the shortest articles to appear on the Journal’s front in decades. It goes three columns wide but is less than 450 words.

The paper refers to other stories inside, and goes further in depth on A6:

His salvo is the latest example of how the housing and financial crisis has shredded regulatory and corporate boundaries that for years directed the government’s role in financial markets. Policy makers around the world are reconsidering new powers for supervisors, reversing a trend toward easing restrictions on banks and financial markets.

The Financial Times reports on its front page that Paulson says the Fed’s meddling in investment-bank finances should be temporary and that “investment banks merit different regulatory treatment than commercial banks because they do not have taxpayer-insured deposits.”

Fed’s gain would be SEC’s loss?

Bloomberg says such an increase in Fed power would come at the extent of the hapless Securities and Exchange Commission. It quotes one guy, at least, who thinks this is a very big deal:

”This is tectonic,” said Ralph Ferrara, a former general counsel at the SEC, and now a partner at Dewey & LeBoeuf LLP in Washington. “We no longer want to have a balkanized response to a national crisis…”

The SEC will be so diminished that it ”will be given a nice view of the Potomac from whatever floor of the comprehensive financial services regulator they are given,” said Ferrara.

The New York Times doesn’t think it’s such big news for some reason:

The Treasury secretary did not break new ground in his remarks, which nevertheless reflected his and the Bush administration’s continuing concern with the struggling economy and a growing collective belief that federal regulators need to know more about the often-secretive world of Wall Street finance—a world Mr. Paulson knows well as a former chief executive of Goldman Sachs.

But the Los Angeles Times says it’s a “significant shift from the position the administration held before the current credit crisis.”

Senate scrutinizes Bear deal

The NYT says senators “signaled their unease on Wednesday with the Federal Reserve’s shotgun marriage of JPMorgan Chase and Bear Stearns, demanding detailed information by next week about how the $30 billion deal was reached.” The Senate Finance Committee, on what looks like a bipartisan basis, will launch an investigation.

RIP: home-equity loan

The NYT goes above the fold on A1 with a story saying home-equity loans are the next hotspot in the credit crisis. Lenders are already playing the heavy to ensure they get their money back, helping prevent homeowners from selling their houses short.

Americans owe a staggering $1.1 trillion on home equity loans—and banks are increasingly worried they may not get some of that money back.

To get it, many lenders are taking the extraordinary step of preventing some people from selling their homes or refinancing their mortgages unless they pay off all or part of their home equity loans first. In the past, when home prices were not falling, lenders did not resort to these measures.

The Times trots out the stat that says Americans on average own less than 50 percent of their homes for the first time, having binged on easy cash in recent years provided by lenders falling all over themselves to shovel it out the door. Now the banks that own the first mortgage are going head to head with banks that own the second mortgage. The paper says 5.7 percent of home-equity loans are delinquent, but that’s not up terribly much from 4.5 percent last year.

One thing the NYT doesn’t mention is how much the demise of the home-equity loan will hurt. The economy has been goosed for years by folks taking big bucks out of their homes and spending it on renovations, vacations, or whatever. That running economic stimulus package is pretty much gone now.

Enron redux?

Vikas Bijaj, the Times’s byline machine, not only churns the home-equity story out on A1, he’s got another one above the fold, as well.

The bankrupt subprime lender New Century Financial, which failed last April in one of the first big signs that this mess was beginning to unravel, used “significant improper and imprudent practices”, according to investigators. Sounds like Enron: the investigators say said practices were condoned by its accountants KPMG, something KPMG of course denies. But the e-mails look like they will do them in—again.

E-mail messages uncovered in the investigation showed that some KPMG auditors raised red flags about the accounting practices at New Century, but that the KPMG partners overseeing the audits rejected those concerns because they feared losing a client.

Ruh roh, Shaggy.

New Century changed the way it accounted for loan losses, allowing it to report a profit when it actually lost money in the last six months of 2006. This subprime thing started long before the consensus believes it did.

The investigation was led by Michael J. Missal, a lawyer and former investigator in the enforcement division of the Securities and Exchange Commission…

Mr. Missal, who also worked on an investigation of WorldCom’s accounting misstatements, concluded that KPMG and some former New Century executives could be legally liable for millions of dollars in damages because of their conduct…

Our Smoking Gun Quote of the Day:

“I saw e-mails from the engaged partner saying we are at the risk of being replaced,” Mr. Missal said in a telephone interview about a KPMG partner working on the audit of New Century. “They acquiesced overly to the client, which in the post-Enron era seems mind-boggling.”

Speaking of Enron…

Citigroup finally settled over its role in helping the E lie to investors, the NYT says on C3. Citi will fork over $1.66 billion it can ill afford at the moment to the Enron Bankruptcy Estate, though it’s long had reserves set aside for the possibility of such a payout.

The WSJ says on C4 that:

“It represents a huge step toward the final settlement of litigation Enron brought against 11 banks, accusing them of conspiring with former Enron officials to manipulate the energy company’s finances. Enron says the banks helped set up structured finance transactions with Enron that buried the company in debt, forcing it into bankruptcy.”

The NYT says Citi has “so far” paid out more than $4 billion for its role in the Enron debacle, but still has another $1.5 billion in claims against it from a “group of several other big banks that has accused Citigroup of being deceitful about Enron’s finances in its role as principal agent for the group.”

The FT reports more bad Citi news. On-the-money analyst Meredith Whitney says the bank may have to take another $11 billion in write-downs this quarter and it faces lawsuits over its underwriting of mortgage-backed securities.

Citizen Meriwether

The WSJ reports on C1 that a founder of the infamous Long Term Capital Management, the hedge fund that nearly brought global financial markets to their knees a decade ago, is against getting his butt handed to him.

John Meriwether’s biggest fund is down 28 percent so far this year (the average hedge fund is down 3.4 percent) after trailing markets last year, and investors are trying to bail out.

Mr. Meriwether and his colleagues at JWM Partners LLC—which he launched in 1999 with LTCM alumni—are trying to reassure investors in the two funds that they have slashed risk and will use their experience to survive this market crisis, preserving about $1.4 billion in assets.

The struggles represent a warning signal to investors that the perils of the current crisis aren’t over despite lower market values and government efforts to calm the financial system.

This guy just can’t keep away from bad press:

One of Wall Street’s best-known traders, Mr. Meriwether was featured prominently in the book “Liar’s Poker,” which depicted the antics of Salomon’s bond traders. His LTCM hedge fund, located in Greenwich, Conn., included Nobel Prize winners and math whizzes, but it was undone in 1998 by massive “leverage,” or borrowing—up to $50 for every dollar invested—which amplified losses when the markets turned on him.

Mr. Meriwether’s recent troubles partly stem from borrowing. His bond fund had $14.90 in borrowed money for every $1 in equity at the end of February, according to the March 18 letter. Although far lower than at LTCM, the fund’s risk level, which includes leverage, was still too much for this year’s volatile environment, he and his fund managers have acknowledged in conversations with investors.

How do we invest our money with this guy?

Icahn wants more

Investor Carl Icahn won his long battle to split Motorola into two companies, but that’s not satisfying the billionaire, who says he’ll still fight to take four board seats, the WSJ says on B1. The NYT puts it on C1 and reports that the company will divide its struggling cell phone maker from the rest of its business by 2009.

A whimper

In economic news, the fourth-quarter GDP report is due from the Commerce Department this morning. A Bloomberg survey predicts it grew just 0.6 percent.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.