felixthecat
June 20th, 2008, 10:35 PM
The Fed's New Job
By INVESTOR'S BUSINESS DAILY | Posted Friday, June 20, 2008 4:20 PM PT
Finance: In the busy week that was, it's a story that was virtually ignored: The Treasury wants to give the Federal Reserve sweeping new powers to oversee and regulate Wall Street. We're not sure that's such a great idea.
Treasury Secretary Henry Paulson said it's time to give the Fed more authority over the investment banking houses. "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," he said Thursday.
After all, the Fed has turned into the lender of last resort for Wall Street, after extending hundreds of billions in loans to help troubled companies weather the subprime mortgage storm. So why not let it rule the roost and become top cop?
Because Wall Street already has a regulator: It's called the Securities Exchange Commission, and it's led by one of the ablest people in Washington, former Congressman Chris Cox. Does Cox need another regulator looking over his shoulder?
There's something to be said, however, for regulating with as light a hand as possible. This is especially true considering that both Wall Street and corporate America are still reeling from the poorly thought-out Sarbanes-Oxley Act, the 2002 law that has played a big role in the recent decline of the U.S. as a global financial center.
...
"How well does government do in helping the market to improve what it does? The research consistently finds that, in fact, government efforts to correct market failures have little effect, or actually make things worse."
That's certainly been our observation. Just look at the current subprime lending meltdown, the main reason the Fed has gotten involved on Wall Street.
The subprime mess didn't happen in a vacuum; it was a direct result of the Community Reinvestment Act, passed in 1977, which for the first time obligated banks to lend to non-creditworthy customers. Those that didn't come up with programs could be punished by the regulators. It became a major focus of the Fed as well.
(Yes, D.C. forced mortgage companies to loan money to "noncreditworthy curstomers". You've been told it was greedy lenders exploiting people. It's more the other way around - thanks to legislation by your political representatives! Any business person knows not all borrowers are equal - some are more risky than others and business not political hacks, need to determine if the risk is too high to avoid what has now happened. Worse yet, YOU get the bill for the irresponsibility imposed on lenders by law! )
In the case of the subprime meltdown, the Fed helped bring about the crisis by whipsawing the economy through two big rate-hike cycles in just five years. It should have known better, and now we're paying the price. Does it really need another job to do?
http://www.ibdeditorials.com/IBDArticles.aspx?id=298856946353107
I wonder .... just how large will government grow? :thinking
Nationalize the oil industry?
Universal heathcare?
Will there by any limits on government?
How will capitalism survive?
Or is socialism the answer?
What do you think?
By INVESTOR'S BUSINESS DAILY | Posted Friday, June 20, 2008 4:20 PM PT
Finance: In the busy week that was, it's a story that was virtually ignored: The Treasury wants to give the Federal Reserve sweeping new powers to oversee and regulate Wall Street. We're not sure that's such a great idea.
Treasury Secretary Henry Paulson said it's time to give the Fed more authority over the investment banking houses. "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," he said Thursday.
After all, the Fed has turned into the lender of last resort for Wall Street, after extending hundreds of billions in loans to help troubled companies weather the subprime mortgage storm. So why not let it rule the roost and become top cop?
Because Wall Street already has a regulator: It's called the Securities Exchange Commission, and it's led by one of the ablest people in Washington, former Congressman Chris Cox. Does Cox need another regulator looking over his shoulder?
There's something to be said, however, for regulating with as light a hand as possible. This is especially true considering that both Wall Street and corporate America are still reeling from the poorly thought-out Sarbanes-Oxley Act, the 2002 law that has played a big role in the recent decline of the U.S. as a global financial center.
...
"How well does government do in helping the market to improve what it does? The research consistently finds that, in fact, government efforts to correct market failures have little effect, or actually make things worse."
That's certainly been our observation. Just look at the current subprime lending meltdown, the main reason the Fed has gotten involved on Wall Street.
The subprime mess didn't happen in a vacuum; it was a direct result of the Community Reinvestment Act, passed in 1977, which for the first time obligated banks to lend to non-creditworthy customers. Those that didn't come up with programs could be punished by the regulators. It became a major focus of the Fed as well.
(Yes, D.C. forced mortgage companies to loan money to "noncreditworthy curstomers". You've been told it was greedy lenders exploiting people. It's more the other way around - thanks to legislation by your political representatives! Any business person knows not all borrowers are equal - some are more risky than others and business not political hacks, need to determine if the risk is too high to avoid what has now happened. Worse yet, YOU get the bill for the irresponsibility imposed on lenders by law! )
In the case of the subprime meltdown, the Fed helped bring about the crisis by whipsawing the economy through two big rate-hike cycles in just five years. It should have known better, and now we're paying the price. Does it really need another job to do?
http://www.ibdeditorials.com/IBDArticles.aspx?id=298856946353107
I wonder .... just how large will government grow? :thinking
Nationalize the oil industry?
Universal heathcare?
Will there by any limits on government?
How will capitalism survive?
Or is socialism the answer?
What do you think?