My Reuters amigo Christopher “Black” Swann goes after the Fed plan to curb Wall Street pay — with a vengeance. Here is a bit, but read the whole thing. Your brain will thank you:
After a big speech by the POTUS and the leak of a Fed proposal to monitor and curb Wall Street pay (really, pay at thousands of banks), what has changed about Too Big Too Fail, erratic Fed monetary policy and U.S. housing policy? They’re the true villains of the financial crisis. You want to limit leverage and raise capital requirement? Fine. But the WH is taking its eye off the ball, I think …
The Obama administration wants the Federal Reserve to be the maximum regulator of the American financial system. As Treasury Secretary Timothy Geithner told the Senate Banking Committee, “The Federal Reserve is best positioned to play that role. It already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks.”
Talk about a phenomenally bad idea. According to the WSJ:
Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. … Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees — from chief executives, to traders, to loan officers — to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives.
What is the case, really, for the Fed being the superregulator of the US financial system? I mean, what is the record of achievement in either regulating banks or detecting systemic crises? Not to mention that by expanding the Fed portfolio de jure, you are opening it up to increased political interference. It is already operating as a quasi fourth branch of government. It doesn’t need any more authority. I realize that Bair’s Justice League of Regulators may be unwieldy in a crisis, but let’s not get into a TBTF position to begin with. Raise capital requirements that increase by a greater percentage than assets and be done with it, no wild swings in rates, and make sure accounting rules don’t magnify cyclicality.
Long after the American economy returns to growth mode, the national debt will continue to soar. According to the Congressional Budget Office, the national debt — as low as 33 percent of GDP in 2001 — will reach 54 percent of GDP this year and grow to at least 68 percent by 2019. Beyond that, the increasing cost of mandatory social insurance spending will certainly push the U.S. debt-to-GDP ratio ever higher in the decades ahead.
Stuff I read today that you should, too!
Bernanke’s out of control! Russell Roberts thinks Bernanke has gone overboard in reacting to the Great Recession. He might be right, though as the man who jumped out of the burning airplane with no parachute said, “First things first!”
And once more, another person in Washington involved with helping create the financial crisis gets to keep his job. In a bit of a summertime surprise, President Obama has renominated Ben Bernanke as Fed chairman.