The Paulson Plan

The Paulson Plan is quite puzzling. First, the idea of competing regulators is somewhat strange. I understand the presumption that competition is good and creates incentives, but I fail to understand how this applies to bureaucracies. Second, and most importantly is the role of the Federal Reserve in the regulation process. Again, I understand that those at the Fed likely understand the industry more than any other government agency, but as Tyler Cowen notes, this is essentially like trading Fed independence (if there is any left) for better regulation. In my mind, the former is much more important than the latter.