How much regulation will investment banks face?

Too often Wall Street snaps that the federal government should leave it alone. Then, once things go wrong, these fiscal conservatives transform themselves into New Deal Democrats and applaud moves like the Bear Stearns Cos. (NYSE: BSC) bailout.

Now comes word from Washington that the investment banks better prepare themselves for greater government scrutiny. The question is how much. These dealmakers are now crying that they want the government's help without any additional oversight. That seems like a non-starter and even the Bush administration recognizes the need for greater oversight of Wall Street.

Speaking in Washington today, Treasury Secretary Henry Paulson said Wall Street firms will need to provide additional information about their financial conditions if they want to borrow money from the Federal Reserve. The former Goldman Sachs Group Inc. (NYSE: GS) CEO stopped short of calling for investment banks to face the same regulations as commercial banks.

"Mr. Paulson acknowledged that the Fed's decision to lend to investment banks creates a contradiction between how commercial and investment banks are being treated, and he implied that investment banks ought to be subject to the 'same type of regulation,'" The New York Times said. "But moments later, he said: 'Recent market conditions are an exception from the norm. At this time, the Federal Reserve's recent action should be viewed as a precedent only for unusual periods of turmoil.'"

Looks like the adage of a conservative being a liberal who got mugged needs to be revised.