The Power Hungry Fed

Treasury Secretary Henry Paulson is back in the news again. This time, it’s for introducing a new and controversial idea concerning the role of the federal reserve.

After reviewing recent economic interaction, Paulson believes the Fed needs a greater role in the general markets, and has made a progressive proposal concerning the responsibilities of the department. The Secretary would like the reserve to monitor all of the financial industry. In addition, Paulson has offered the following elements as well:

-Merge the Securities and Exchange Commission with the Commodity Futures Trading Commission

-Give stock exchanges more room for self-regulation

-Consolidate bank supervision into one regulator

The idea behind this new proposal, is that the federal reserve becomes more efficient, but also a sort of “first line of defense” for financial crisis. Streamlining the fed is certainly a good idea; this will make them more productive while also lowering the cost to the American taxpayer. However, giving the reserve more to care for is increasing government-economic regulation, not shrinking it. I am a big opponent of federal regulation in almost every case, and this area is one of them.

I say this because for all the good regulation is said to do, we see at least as much bad. In this case, I feel that having the fed support all of the financial industry would be creating a giant crutch, paid for in taxes and bonds. Another words, if the reserve does monitor and support the financial industry, I will expect less-intelligent decisions and more leaning on the government.

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Published in: on March 29, 2008 at 1:25 pm  Comments (2)  

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2 CommentsLeave a comment

  1. I’ve always been in favor of the free market, but the financial services industry has proven they’re incompetent. These subprime loans were clearly bad loans, unlikely to be repaid, and securitizing those loans was securities fraud. We need regulation with a big stick – a big government bailout of a financial services company should mean the entire board goes to jail.

  2. What you leave out is the the Fed is the cause of the problems in the first place. It was Fed policy, and regulation, that permitted the subprime loans. The government was standing there the whole time urging them to give more subprime loans. Now the government is giving my money to those same executives to cover their bad loans.


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