There's growing public sentiment that the financial crisis is an indictment of the free-market system and can only be solved by a massive injection of new federal regulations.

It's certainly true that the regulatory structure hasn't kept pace with the complex security vehicles that helped trigger the collapse of the financial markets. Adjustments are needed to assure better oversight of Wall Street.

But it's also true that some existing regulations contributed to the meltdown. Those ought to be addressed before Congress rushes to regulate further.

As it reconsiders the $700 billion recovery package necessary to unplug the flow of credit and restore confidence in the markets, Congress could build credibility with skeptical voters by also undoing some of its own damage.

First, lawmakers should assure taxpayers that the two institutions most responsible for the crisis, Freddie Mac and Fannie Mae, will not be allowed to return to business as usual once the storm passes. Congress enabled the lending abuses by the two quasi-governmental agencies and resisted repeated efforts to bring them under tighter control.

The two agencies should be reorganized, broken up and sold to private operators to take away from Congress the temptation of having hundreds of billions of dollars in mortgage funds at its disposal.

Congress should also suspend the mark-to-market accounting rules that have deceptively devalued the assets of many financial institutions. The rule requires companies to value the assets on their balance sheets based on what those assets can be sold for today, even if the companies have no intention of selling them and can reasonably expect the values to rise again.

In the case of mortgage assets, that means that as housing values decline, the institutions holding the mortgages have to constantly downgrade the value of the assets to reflect the paper loss. Lending firms must replace the lost value with cash to meet regulatory requirements.

If one or more companies are forced to dump their assets at a steep discount to raise capital, the value of similar assets held by other companies must also be marked down, and then those companies must also scramble to raise cash.

This spiral has led to tightened credit and made otherwise healthy companies appear to be in distress.

Suspending the mark-to-market rule would ease the stress on banks and get credit flowing again.

Congress should also repeal the Sarbanes-Oxley corporate reporting rules that were drafted in response to the Enron-type boardroom scandals. The law places an extreme financial burden on public companies; money that could be used to invest in growth must be spent fulfilling the complex accounting requirements.

Sarbanes-Oxley has driven many companies to go private, giving increasing influence in the economy to investment firms and less to public shareholders. U.S.-based initial public offerings have nearly disappeared since Sarbanes-Oxley was adopted.

The law also criminalizes accounting mistakes, making an office in the executive suite of a public company a very risky position.

Congress has to sell the American public on the wisdom of spending $700 billion to restore stability to the financial markets.

A good start would be undoing the things that Congress has done to contribute to the crisis.

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