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Let the Fed regulate

By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Politics is trumping common sense in Congress as Republicans and Democrats keep heaping abuse on the Federal Reserve. As a result, they could end up adopting an unworkable, risky overhaul of financial market regulation. 

Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, is leading the parade with his plan to strip the central bank of virtually all its oversight of commercial banks.

  ”I really want the Federal Reserve to get back to its core enterprises,” Dodd said. In recent years, the Fed’s regulation of bank holding companies and consumer lending “was an abysmal failure,” he charged. 
 
No, the Fed didn’t cover itself with glory in some of its regulation and supervision, but neither did any of the other financial regulatory agencies. Moreover, the most serious failures last year involved investment banks overseen by the Securities and Exchange Commission, not the Fed.

Who will be the global regulator?

BusinessWeek’s Chief Economist Michael Mandel argues here that it may require the creation of a global regulator to control global banks.

He says the Obama administration’s financial regulatory reform package is so “unsatisfying, precisely because in an increasingly global economy it focuses mainly on beefing up U.S. regulation. ” At one time, that would have been enough, he says. But not anymore.

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