"In its main analysis of what went wrong and in its prescriptions, the [Obama adminstration] proposal also remains true to the current Washington consensus that the bankers caused the whole mess. They did so, we are told, by cleverly running around and through Washington's already vast regulatory army of the [Fed], the [OCC], the OTS, the FDIC, the NCUA ..., the SEC, the CFTC, and who could vforget, the FHFA. ... Who'd have thought these massed legions were little more than a Maginot Line against the banker blitzkreig? ... There's not a word in the 85 pages about the Fed's years of negative real interest rates, and the only mention of Fannie Mae and Freddie Mac is a placeholder paragraph noting that reform of those housing giants weill come later. ... Treasury is of course a political body subject to political pressure. One reason 'emerging risks' are often overlooked is that regulators have to brave enough, and independent enough, to stop the music in the middle of the party. ... The danger is that once the market understands these banks are too big to fail, the banks themselves and their lenders will begin to consider them to be like Fannie and Freddie. Their cost of funds would become cheaper than those of smaller competitors", Editorial at the WSJ, 18 June 2009, link: http://online.wsj.com/article/SB124528087493225237.html.
"The notion that a regulator will be able to anticipate the next crisis and correctly prescribe the proper cure flies in the face of our recent experience. ... Not a single central banker in the last episode noticed the crisis before it was already manifest. Indeed, many commentators believe it was the Fed itself that set this crisis in motion with easy credit. ... This brings us to the second problem with the scheme--the false positive. Nobody has considered the cost of a misdiagnosis by the systmatic risk regulator", my emphasis, Thomas Dempsey (TD) letter to the FT, 23 June 2009.
I agree with the WSJ. There is nothing of substance in this proposal.
Well said, TD. Uncle Miltie used this type of reasoning over 40 years ago to argue for fixed monetary rules.
1 comment:
Exactly...
The Federal Reserve who missed the Internet mania and created the housing implosion now is being considered as the "systemic regulator"?
It defies logic... it is legacy thinking of the old order... when the global banks ruled all... and the time when enough repo and haircutting and the credit flow could be controlled...
We have squandered our national strength... we will have to earn it back... and bestowing more authority in the Fed is the entirely wrong way to go...
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