Fed May Gain More Financial Oversight

From the Washington Post, courtesy of Michael Perelman. Here are his thoughts on the matter:

Considering that the Federal Reserve is supposed to be independent of the government, it would seem that getting such powers to the Fed would be ill-advised.

In addition, considering that the Fed’s posture in the bailout makes the Treasury Department looks like a paragon of transparency, giving such powers to the Fed seems even more questionable.

When the Democrats promised change, I thought they meant change for the better. Maybe I was wrong.

Here’s the article:

Fed May Gain More Financial Oversight
Some Worry Plan Would Give Bank Too Much Power

By Neil Irwin and Binyamin Appelbaum
Washington Post Staff Writers
Monday, January 26, 2009; A01

Congress is moving to create strong new oversight of the financial sector that would likely give the Federal Reserve authority to examine the workings of a wide range of companies in an attempt to address one of the key failures that led to the financial crisis.

But the initiative, which could be finalized in the House by spring, is raising concerns about whether it would muddy the Fed’s traditional mission and concentrate too much power in a single federal body.

The legislation envisioned by House Financial Services Committee Chairman Barney Frank (D-Mass.) would put the Fed, or less likely another government agency, in charge of protecting the stability of the entire system, Frank and other congressional sources said.

An abundance of federal agencies regulate the financial industry. But no agency is responsible for understanding or containing risks affecting the financial system as a whole. In fact, none even has a complete picture of the financial markets.

The danger was highlighted by last year’s meltdown of insurance giant American International Group. In the days before the government was forced to bail out the firm, no federal official comprehended the magnitude of the threat the company’s troubles posed to the economy.

Under Frank’s legislation, the new regulator would likely be given the power to gather information about the inner workings of banks, investment firms, insurance companies, hedge funds and any other entity big enough or so intertwined with other companies that it creates the risk of a systemic collapse. These companies would have to provide detailed information about how they manage risk, their derivative contracts and the extent to which they use borrowed money.

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