I am not in favor of the Federal Reserve as a greater regulator over the financial system. Why? They can’t even do their own job right, or use the tools that they have today effectively.
Is the stock market too frothy? Let them adjust margin ratios.
Are they worried about the solvency of investment banks? Let them increase the level of capital that needs to be held against investment banks. Hedge fund worries? Same drill.
There should be a bright line distinguishing the regulated from the non-regulated financial companies. Capital requirements on loans from the regulated to the non-regulated shoul be very high, forcing the non-regulated entities to be mainly equity-financed.
Beyond that, the Federal Reserve has enough of a hard time with their existing mandate, balancing inflation, unemployment, and the health of the banks that they regulate. Adding additional balls for them to juggle will make their paralysis greater.
Better we should consider giving the SEC some real teeth, and funding it appropriately to do it. Let the next President put forth a good proposal to make it happen.
What do you make of the argument that the missions are complimentary? That intimate familiarity with the banks books of business provides information with which to make higher level policy decisions. I think there is a case to be made here especially in the discount lending facility, where the Fed decides how much of a penalty to impose on lesser capitalized institutions.
Better Yet:
http://www.RevokeTheFed.com
Messrs. Glass and Steagall from the 1930′s are looking pretty smart these days.
It was the 1996 repeal of Glass-Steagall that put the Fed on the hook for all of Wall Street’s quasi-banking hijinks.
Before 1996, all the Fed needed to backstop was the deposit banking system.
Without the Glass Steagall repeal, there would have been no reason for the Fed to even consider the Bear Stearns rescue, or any of its other current worries relative to the wild speculations of our modern-day “banks”.
tradahmike — I almost agree, but the Fed had already gutted G-S for most practical purposes by 1996. The main issue is making sure that guarantees only apply to the safest, most vanilla operations of banks, and placing risky operations in separate subsidiaries that must be equity financed.
As for eliminating the Fed, nice idea, but unworkable during a bust phase… maybe as we come out of the trough it can be considered.
“As for eliminating the Fed, nice idea, but unworkable during a bust phase… maybe as we come out of the trough it can be considered.”
The idea is first to nationalize the Fed so we can get an inside look at what is happening. Then Congress can do what is needed. I am not sure we are going to “come out of the trough” without direct government action, and nationalizing the Fed is a pretty direct action (may be occuring as we speak anyway).
Oh, and as to the G-S Act: What is happening right now seems much worse. By performing a shotgun wedding for BS and JPM, plus lending money to the investment banks (and accepting their “collateral”), we are currently integrating the commercial banks, the investment banks and the government!
Also, the Fed system is practically bankrupt anyway. All the member banks have borrowed their reserves:
http://research.stlouisfed.org/fred2/series/BOGNONBR
Unprecendented since the stats have ben collected (late 50′s).
this indeed seems to be the remedy if ultimate goal is stability and credibility of the big market participants.
but without highly leveraged entities how is the fed going to promote ‘growth’? wouldn’t that require going back to the basics of capitalism: work, exploration of resources, technological innovations etc?
who will volunteer to work when the fed can create wealth effect faster by simply running the printing presses overtime.