Fed to Get More Powers

With the collapse of Bear Stearns, it was evident that the US financial system needed a big overhaul. What was less evident was whether the Bush administration was prepared to step up and do something. Treasury Secretary Henry Paulson has indeed stepped up.

CNN reported, “Under the Paulson plan, the Fed would essentially serve as a financial markets moderator, stepping in if the nation's markets were again threatened by an episode like the near collapse of Bear Stearns. The plan would also give the central oversight of previously unregulated entities like hedge funds and private equity firms who have wielded growing influence in financial markets in recent years.”

There will be the usual whining and moaning from the free market crew, but the situation has reached the point where a single government agency has to oversee, at a minimum, the financial market. That is all the more so if they are going to get bailed out when they screw up. And the Fed is probably best situated to do it.

Currently, there is a hodgepodge of different agencies supervising the markets. The SEC does stocks, the CFTC does futures contracts, and the Office of the Comptroller of the Currency looks after banking. That may have been the way to go in years past, but recent events have shown that the system isn’t working anymore.

All of this will require Congressional approval, so it won’t be happening any time soon – especially in an election year. However, the idea of sweeping changes in the way America’s financial markets are regulated is worth discussion. If the politicos don’t get to that for now, so be it. Ideas can always use tweaking.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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