The near collapse of Bear Stearns has shaken awake Washington to the realities of a struggling Wall Street. In a flurry of action yesterday, the Treasury secretary, Henry Paulson, called for federal oversight of investment banks; the top two members of the Senate Finance Committee declared an investigation into JPMorgan Chase’s acquisition of Bear Stearns, and Rep. Vito Fossella of New York said he was preparing to unveil regulatory reform legislation.

All this comes as the chairman of the Senate Committee on Banking, Housing and Urban Affairs, Senator Dodd, prepares to hold hearings next week on the matter, and the chairman of the House Financial Services Committee, Rep. Barney Frank, is promoting his own plan for increased regulation.

“There is an awful lot of nervousness in Washington, and Bear Stearns has been like a wet noodle slapped across the face of Congress,” a resident scholar at the American Enterprise Institute for Public Policy Research, Norman Ornstein, said.

Perhaps the most critical piece of news was Mr. Paulson’s speech yesterday, when he called on the Federal Reserve to regulate so-called primary dealers, including brokerage firms and investment banks. In a move not seen since the Great Depression, the Fed earlier this month began lending directly to primary dealers; traditionally, the Fed lends only to commercial banks that it closely regulates.

“This latest episode has highlighted that the world has changed, as has the role of other non-bank financial institutions, and the interconnectedness among all financial institutions,” Mr. Paulson said in comments to the U.S. Chamber of Commerce.

Mr. Paulson also proposed that the Fed, which has been accepting risky mortgages and other assets as collateral in return for billions of dollars in funding, should have access to primary dealers’ balance sheets.

“The Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions,” he said.

The speech presented Mr. Paulson “as conflicted,” a resident scholar at the American Enterprise Institute, Vincent Reinhart, a former director of the Fed’s Division of Monetary Affairs, said. The Treasury secretary, who was chairman and CEO of Goldman Sachs before joining the Bush administration, said the Fed’s move to lend directly to broker dealers should be a temporary fix and used “only for unusual periods of turmoil.” Yet he also noted: “Certainly, any regular access to the discount window should involve the same type of regulation and supervision” for primary dealers and commercial banks.

“As the Treasury secretary, he had to support the Fed’s initiatives, but it was obviously conflicted,” Mr. Reinhart said.

“I was surprised with the speech. I’d actually hoped Paulson would be a change of pace and come out supporting free market policy,” a senior fellow at the Cato Institute, Daniel Mitchell, said. “We should neither have federal regulation of investment banks nor federal bailouts, and just because we bailed out Bear Stearns doesn’t mean we should now regulate the banks. Two negatives do not make a positive.”

The Fed’s decision to provide a $29 billion credit facility to JPMorgan as part of the deal to acquire Bear Stearns, and its move to lend directly to investment banks, has had several consequences, experts say.

Chief among them is that it will be more difficult now to come up with private sector solutions for market problems, because the players recognize that the Fed may eventually bail them out, Mr. Reinhart said.

“It’s a game of poker, and the Fed has shown its hand,” he said. The Fed’s decision has also paved the way for additional regulation of other Wall Street players.

“There is a whole shadow banking system that will suffer, including hedge funds and private equity firms,” the managing director of RGE Monitor, Christian Menegatti, said. These industries have so much leverage, they can easily create a deep systemic risk for the economy — the same justification the Fed used intervene with Bear Stearns, he said.

Another consequence of the Fed’s actions is politics: The Fed’s intervention with Bear Stearns could give Democrats greater leverage in their efforts to spur government guarantees of mortgages. Until now, the Bush administration has resisted calls for this type of intervention.

In his speech, Mr. Paulson alluded to these efforts, noting, “I know members of Congress have outlined other ideas, but most are not yet ready for the starting gate.”

Despite Mr. Paulson’s dismissal of Congress’s efforts to propose solutions, it is the Fed’s own actions that have been the catalyst for the voluminous amount of regulatory legislation now in the works, experts say.

“It is a policy feeding frenzy,” the director of government reform at the Reason Foundation, Michael Flynn, said. “And I don’t think anything good is going to come out of it.”