More Power for the Fed
The New York Times reports: "The plan the president will formally announce on Wednesday would give the Federal Reserve greater supervisory authority over large financial institutions whose problems pose potential risks to the economic system."
LBJ School Professor Robert Auerbach wrote the book "Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank." He said today: "The Federal Reserve has massive conflicts of interest that make it ill suited for its present regulatory functions and certainly for an expanded regulatory reach. The officials leading the Fed today preside over an organization that is run in substantial part by the bankers they regulate. Bank regulation begins at its 12 district Federal Reserve Banks, each governed by a nine-member board of directors, two-thirds of whom are elected by the bankers in the district.
"The plan for a separate federal government 'board' over all regulators to coordinate systemic risk management is also not a good idea. There have been poor results with divided regulation between bank regulators despite the creation of the Financial Institutions Examination Council (FFIEC) in 1979 to coordinate regulation. The FFIEC has had as much influence on the secretive Federal Reserve, which regulates the financial holding companies of the huge superbanks and foreign banks, as hitting the powerful bureaucracy with a wet noodle."
Author of "Other People's Money" and the forthcoming "It Takes a Pillage" ,Prins just wrote the piece " The Big Bank Bailout Payback Bamboozle." She said today: "As Treasury Secretary Tim Geithner talks tough about financial regulation, the banks are paying back federal subsidies with other federal subsidies -- classic definition of a Ponzi scheme.
"The 'sweeping overhaul' of the financial system detailed by Geithner on behalf of the Obama administration does not overhaul the system at all. True, items like enhanced issuer accountability and restrictions for securitized products, greater leverage constraints and relegating certain derivatives to exchanges, are useful alterations. But, giving the Fed a bigger role, creating a 'council of regulators' to oversee the existing oversight bodies and allowing the biggest Wall Street players to maintain their status, leaves the system intact.
"The Federal Reserve is not a fully public entity. It has amassed a set of $7.87 trillion worth of facilities and other entities through which it has lavished cheap loans in return for questionable collateral from the banking system. It has kept the true nature of these transactions a secret despite numerous FOIA requests. And, it has actively promoted the creation of bigger institutions in a chaotic environment, rather than putting the brakes on the creation of these giants. ...
"Rather than regulate a complicated industry by creating more layers of regulatory entities and giving more power to the Fed, which deserves a stringent audit instead, the more lasting solution to financial chaos would be to actually restructure the banking industry itself: divide banks into consumer vs. investment bank entities, like the Glass Steagall Act did in 1933 -- until it was repealed during the Clinton administration." A former investment banker turned journalist, Prins is a senior fellow at the think tank Demos.
For more information, contact at the Institute for Public Accuracy: Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167