Federal Reserve Bank is financial system’s new “uber-regulator” – USATODAY

Excerpt from USATODAY.com

President Obama unveiled a stem-to-stern overhaul of financial industry regulation Wednesday, promising dramatic changes for banks, consumers, hedge funds and even the inner workings of the Federal Reserve. The ambitious proposal is designed to strengthen a ramshackle system of government oversight that failed to either prevent or mitigate the current financial crisis.

The new regulatory blueprint would “protect America’s consumers and our economy from the devastating breakdown that we’ve witnessed in recent years,” Obama said.

The sweeping proposal marks an emphatic end to an era during which top policymakers, notably including then-Fed chairman Alan Greenspan, celebrated the ability of market participants to largely police themselves.

FN- Did you read that double speak? They say bad government regulation caused the crisis. Now Greenspan is celebrating because they now “self-regulate”? We went from bad regulation to NO regulation? How does he pull this off?

Increased powers for Fed

Among the most controversial elements are expanded powers granted the Fed. The central bank, which controls the nation’s money supply and supervises the banks, would become the financial system’s uber-regulator. The Fed missed the housing and credit bubbles while they were inflating, badly underestimated their costs when they did pop and already has a full plate, critics say. With the Fed already engaged in numerous unconventional interventions in financial markets, some worry that adding a new role could backfire. (FN- You think?)

“I’d rather that the Fed stick to its knitting of conducting monetary policy and be the lender of last resort, as opposed to take on the role of supervision of individual institutions. … In this role, the Fed will be thrust into the center of controversy,” said Hal Scott, a professor at Harvard Law School and director of the influential Committee on Capital Markets Regulation, a private-sector body.

But administration officials say they carefully considered alternatives before opting to task the Fed. Countries that place key supervision authority outside the central bank don’t operate well in crisis situations, Geithner said.

“I do not believe there’s a plausible alternative that would create the necessary degree of confidence, accountability, responsibility and authority for protecting us against some of the risks we faced in this crisis,” he said. (FN- Giving ALL the power to the Fed to “protect us”, thanks Geithner)

A key target of the plan: financial institutions so large and interconnected, their failure could ricochet around the economy with catastrophic results. These “systemically important’ companies would be subject to more scrutiny and would need to hold more capital in reserve than under current standards. The government also would win new authority to handle “the orderly resolution” of them if they suffer fatal wounds.

“After this crisis, it’s clear that there are a number of financial institutions that are capable of being the domino that causes the rest of the financial system to fall over,” said Douglas Elliott, a former JPMorgan investment banker.

But some worry that investors will view any financial institution the government labels “systemically important” as effectively government-backed. (FN-Reread this line carefully)

That could enable such firms to borrow at lower interest rates, since they would seem better credit risks than smaller rivals not vital to the financial system, says the Brookings Institution’s Martin Baily, who chaired President Clinton’s Council of Economic Advisers.

FN- Spread the word, the Federal Reserve is becoming the all powerful all knowing body in the world. The US has NO CHECKS AND BALANCES left because the Federal Reserve has the final say in all monetary and financial matters. Mind you, the banks that back the Federal Reserve are SECRET. We have a SECRET group of people controlling the inner workings of our so-called “free market”. Give me a break. Support TX Rep. Ron Paul’s bill to AUDIT THE FED. It now has an astonishing 234 co-sponsors. Whether you support it or not, it is very likely to pass. The Federal Reserve’s inner workings will be exposed, this they say will “destroy the Fed”. Get involved and READ!!!

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One Response

  1. Thanks for the great post! I look forward to reading more from you!

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