Political hot air from the Fed

“The Federal Reserve is very unhappy with the prospect of losing its regulatory authority over all but the largest financial institutions. The four regional Fed presidents were also quite strident in their advocation of an end to too-big-to-fail. I found this all to be exasperating. None of the attending presidents adequately explained how a Fed that completely failed to prevent dangerous consolidation before the crisis should now be viewed as a credible enemy of too-big-to-fail after the crisis. None of the attending presidents provided tangible evidence of internal changes designed to make the Fed a more credible regulator. Each was asked about the odd disconnect between the Fed’s pre-crisis actions and its post-crisis rhetoric, and each responded by saying little more than “we’ve learned our lesson, now trust us”. And none of the attending presidents made a real case for why ending too-big-to-fail should be the cornerstone of reform and how it might be accomplished. The Fed should lead by example. If it believes it can regulate most effectively, it should be explicit about how it might do that. “We’ve learned our lesson” will not make for a sustainable model of competent regulation.

As financial reform proceeds, it’s always worth asking whether the changes in the law would have prevented the crisis or reduced its severity. At this point, I’m not sure the conversation in Washington is really focused on that question.”

First, define the problem – Free Exchange


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s