WASHINGTON—Lost amid last week's bad economic news, an unexpectedly partisan vote on the stimulus and President Obama's saber-rattling over Wall Street bonuses were the opening shots of a battle over how far Washington should go to reshape the financial system.
But the clash won't remain in the shadows for long.
That means a return to the kind of regulatory system that Wall Street and economic conservatives fought to dismantle going back to Ronald Reagan's presidency and continuing through that of George W. Bush -- or something even more stringent.
Nor is the fight likely to remain confined to finance.
In laying out its plan for revamping the money business, analysts say, the administration will offer the first hints of how aggressively it is prepared to intervene in other damaged or seemingly dysfunctional sectors of the economy such as housing, healthcare, autos and energy.
"The battle is joined between those who say that the reason for the current crisis is insufficient government regulation and those who say that the cause was excessive government involvement in the economy," said Peter J. Wallison, a fellow with the conservative American Enterprise Institute and an architect of the Reagan administration's deregulation drive.
The condition of the nation's big financial institutions and the question of whether many are sinking into a new round of trouble have been the sleeper issues in the administration's early weeks.
While Obama has sought to train public attention on his plan for jolting the economy back to growth with an $800-billion-plus stimulus plan -- a version of which passed the House last week -- Federal Reserve Chairman Ben S. Bernanke and others have warned that the financial system may be taking another turn for the worse and require another expensive fix.
Newly installed Treasury Secretary Timothy F. Geithner is expected to outline the administration's proposed fix in a matter of weeks, if not sooner.
When he does, the package will almost certainly include billions of dollars for homeowners struggling with sinking house values and rising mortgage payments. And it will try again to stabilize shaky financial institutions, either by creating a federally financed "bad bank" to assume firms' troubled assets, by agreeing to bear many losses the firms now bear alone or by seizing financial companies to run or shut down.
The package could signal where the administration is headed on restructuring the system to prevent a repetition of the current mess.
Asked about a sweeping restructuring Wednesday, Geithner appeared to discount the prospects. "We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system," he said.
But by Thursday, fresh pressures had begun to make themselves felt. Democratic and Republican appointees to a congressionally created panel overseeing the government's $700-billion financial bailout issued drastically different accounts of what needed to be done to keep the nation's banks and markets from veering off course in the future.
On one side, the Democratic majority, led by Harvard University bankruptcy expert Elizabeth Warren, called for new regulatory structures as sweeping as any since the Great Depression. The framework would be likely to transform how Wall Street does business.
"It's not enough to regulate only when things fail," Warren's report said. "Left to their own, financial markets boom and bust. They chase themselves up and back down again," threatening substantial economic damage in the process.
"That's why we make the affirmative case for continuous regulation."
On the other side, the group's GOP minority suggested that about all that's needed are stricter standards for mortgages and streamlining existing agencies. It strongly implied that the country's financial problems stem mainly from too much, not too little, regulation.
"In a number of important cases, government policies that have unintended consequences have created problems rather than solved them," said former Sen. John E. Sununu of New Hampshire.