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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.
But there are three more important reasons to keep the Fed in a major role as a regulator of financial institutions. (more…)
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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The Wall
The question is how much do you want a regulatory body to be influenced by politics, and how much you want it to be captured by the banks.
Until proposals to reduce its purview and to audit it, the Fed, because it was insulated from politics, was awful, both under Greenspan and Bernanke, and it sees its goal as protecting the banks, which is, after all much of its reason for existence.
The political pressure that it has gotten has led to it adopting new rules on mortgages, credit cards, debit cards, and gift cards (Gift cards!?!?!? WTF), but this has happened ONLY because of this pressure.
Regulatory authority needs to go somewhere else.