Now things are getting interesting. The Wall Street Journal digs into the Ben Bernanke speech Tuesday and reveals -- shocking -- tensions inside the Beltway. This is actually news. The Federal Reserve and the Treasury had appeared to be marching in eerie lockstep on the central bank's intervention in investment banking, through its Wall Street lending program, and the conventional wisdom, buttressed by a series of Treasury papers, that the Fed would take on the role of "market stabilizer," otherwise known as a super-regulator. Now the Journal reveals the merest whisper, off the record of course, of dissent to the logical unfolding of that plan, which is to give the Fed oversight (or regulatory) powers to accompany its lending program. It now seems that some folks at Treasury fear a concentration of power and that the Fed might move to bail out a firm "even if failure is the most appropriate option."
Continue reading below
This is fascinating, because the use of the term "appropriate" suggests a political, rather than technical, decision. This was always going to be the unstable footing beneath the Fed as the super-regulator. Not only could broad supervisory powers in theory conflict with its primary (even primal) role as monetary cop, but the basis of the Fed's vaunted independence was always the useful fiction that it was engaged in technical financial, not political, operations.
The additional fact that this would consign the Securities and Exchange Commission to second-rate status (or less) seems to concern no one.
This muted dissent that perhaps the Fed is gathering too much power could be significant, or it could be the kind of background hiss that's a Washington constant. But given that Treasury poobah Henry Paulson and Bernanke will have to testify together before Congress on Thursday, this does raise some delicate questions. Is Paulson, after essentially ushering the Fed into the breech on Bear Stearns Cos., now getting cold feet about enhanced Fed powers? Or is that dissenting voice just a bureaucratic reflex from within the bowels of Treasury, say some cranky staffer with Democratic leanings who never worked at Goldman, Sachs & Co.? Or did Paulson want the Fed to take responsibility for cleaning up the mess, but never expected it to assume greater powers? Is this the sign of the first real skirmishing over bureaucratic turf, inside and outside Treasury?
The burning question here, which is clearly agitating Bernanke, is when Congress will get around to enabling the precedents already set -- or already being set -- into legislation. Bernanke has already exerted pressure on Congress by suggesting he'll extend the Wall Street lending program into 2009, noting that Congress needs to act before adjourning for summer break and full-time politicking. That almost certainly won't happen, unless the world falls apart dramatically in the next three weeks. For Bernanke and the Fed to get the powers it wants -- you do have to wonder why -- the crisis atmosphere must persist. The longer Congress takes, the less pressing the crisis becomes, the less chance Congress will hand Bernanke a Batman costume and tell him to get with it. - Robert Teitelman
