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What is left for regulators to rescue?

By
April 1, 2008

Treasury secretary Henry Paulson was right about one thing when he introduced his sweeping 218-page overhaul of our financial regulatory system: The midst of a financial crisis is no time to do it.

Paulson and the White House seem resigned to the prospect that if broad reforms are to be enacted, it will be the next president and the next Congress who will do so.

A long, cool, skeptical look at the overhaul is in order if only because it not only greatly expands the authority of the Federal Reserve but also over time might fundamentally change the character of the central bank. And, we might keep in mind, the Fed by design is not the most transparent of institutions. That serves it well as steward of the nation’s currency, not so well as overseer of the financial markets.

Certainly it might be worth seeing how the Bear Stearns mess plays out. Whether the $30 billion infusion of taxpayer money was a well-crafted, one-time bailout — Chrysler and Mexico come to mind — that prevented further damage to the system, or whether we’ve set a bad precedent for rescuing investment banks from their own recklessness.

Streamlining the regulatory structure sounds like a good idea and so does extending federal oversight over previously unwatched institutions like hedge and private equity funds but this broader purview doesn’t seem to be backed up by additional regulatory muscle.

The Bush administration is unashamedly regulation-averse and it’s a fair question to ask whether an aggressive use of existing regulatory powers might have ameliorated the current credit meltdown. Paulson says no “I do not believe it is fair to blame our regulatory structure for the current market turmoil,” he said. Market cycles happen, but it’s hard to believe no one in a position to act saw this coming.

Reform advocates would argue that the two are unrelated, but politically, Congress isn’t going to do anything for the big guys until it can credibly claim it has done something for the little guy — namely, government help with foreclosures.

The issue for the lawmakers will be the same, only writ small: Striking a balance between good public policy — keeping people in their homes, healthy financial markets — and underwriting imprudent speculation, thus setting ourselves up for another debacle.

8 Responses to What is left for regulators to rescue?

  1. Sandra Price

    April 1, 2008 at 12:19 pm

    Don’t give me federal government oversight!!! Give me back the value of my dollar. Get rid of the Federal Reserve and teach people economics.

  2. JerryG

    April 1, 2008 at 9:10 pm

    Hmmmmmmmmmmm!

    What concerns me most about the 218 page overhaul is how quickly Treasury and the Fed put it together! Do you mean to tell me that all it takes is 2 weeks to create, draft and write a sweeping and comprehensive overhaul of our monetary policy, the fundamentals of which haven’t been revised in what, 80+ years?

    Sorry, I smell a rat and this rat has the distinct odor of ink (green ink I bet)!

  3. gradioc

    April 1, 2008 at 10:34 pm

    First, let me respond to Sandra, above. The dollar has been way too strong for years, leading the smart guys to move operations overseas to exploit cheap foriegn labor. Now that the dollar is at a more realistic level against other currencies I hope they’re choking on it.

    My main reason in writng, though, is to say how scared I am of the Bushies writing new regulations and fundamentally changing how the markets work. Don’t get me wrong, I think there is plenty of room for regulation of financial markets. I just fear this bunch doing it for two reasons.

    1) It’s against their nature. They had no interest in adding regulation until the markets started falling apart on them. Now, just to show they’re proactive, they have to do SOMETHING. It would be an entirely different story if there was a long view plan they had put together over years and this was a perfect excuse to execute it.

    Instead, what we are likely to get is a purely kneejerk reaction, slapped together in weeks, with little or no thought as to the long-term consequences. They’re going to regulate hedge funds? That’s insane. Hedge funds are, by their very nature, ultra high risk and ultra high reward when conventional wisdom fails. How can you regulate that? You can’t. If some one wants to take that risk, hey, go for it. The US Governmnt ain’t got nothing to do with it. You’re on your own, old buddy. Which leads me to my second point.

    2) They are idiots. The second layer of government, the Undersecretaries and The Assistant Secretaries and the Assistant Undersecretaries, has been filled with lobbyists and industry insiders whose only point of view is, “Trust us. We know best. We’re making money and all is well”.

    But now the machine is broken. Everybody is losing their ass and the very people these jerks wanted us to trust to run the markets are screaming for help. Well guess what? Nobody’s home. At least nobody that can help. If the idiots at Treasury actually knew anything, they’d be out there making money instead of shilling for the big guys. Any set of “reforms” this bunch of PR guys come up with is likely to set the US economy back 80 years.

  4. Paolo

    April 1, 2008 at 11:34 pm

    Hate to say I told you so, but Ron Paul was the only candidate who had a clue about the criminal nature of the Federal Reserve. Now, the Federal Reserve wants even more power to control the economy.

    The Fed is a criminal gang that has the power to counterfeit legally. The Fed uses this immense power for all kinds of nefarious purposes, from financing the illegal war in the Middle East, to getting special favors for their buddies in the financial world (Morgan Stanley, Bear Stearns, etc.).

    Interestingly, a small group of honest citizens tried minting genuine silver coins with the image of Ron Paul on them. You will recall the authorities swooped down on them in a flash, stealing their “honest money” coins on the grounds that such coins would “illegally compete” with the countries “lawful” currency.

    The Federal Reserve Act, by the way, is unconstitutional, as Congress has no enumerated power to set up a counterfeiting operation. But no one cares about constitutionality any more, except Ron Paul and his followers, who understand the nature of the scam.

  5. SEAL

    April 2, 2008 at 1:32 am

    Question: If we abolished the federal reserve, what would happen?

  6. staunchdem

    April 2, 2008 at 4:16 am

    If anybody on this or any other blog believes a single word that the chimp or his chimpettes says about anything to do with economica they are insane.
    Do not trust these fuckers any farther than you can spit.
    This will need to be fixed when Democrats again run things.
    We’ll be lucky if he allows the elections to proceed but until then trust not in the chimp.

  7. JudyB

    April 2, 2008 at 4:22 am

    The first thing that should be over hauled is the current criminal regime we have…they should be hauled over to the gallows and hung!

  8. JudyB

    April 2, 2008 at 3:34 pm

    The first thing that needs over hauling is the criminal
    regime in charge…they need to be hauled over to the gallows!