There's no arguing that President Obama's proposed financial regulatory overhaul is a necessary, if not overdue move to deal with some of the risks posed by securities markets. It's sweeping, wide-ranging and ambitious. As well it should be. The financial crisis nearly brought down the global economic system, and it did so in spite of individual "risk management models." Financial market players (firms, banks, brokers, dealers, insurance companies, investors, etc., etc.) simply cannot be trusted to manage systematic risk, for the same reason that private individuals cannot be permitted to write and enforce their own laws: When push comes to shove, they're more likely to choose selfish motives over the safety and security of the system. That much should hopefully be clear at this point.
Having said that, you can't help but be a little uneasy with the new role of the Federal Reserve under the proposed plan. The Fed would be designated as the consolidated supervisor of all "Tier 1" financial firms -- that is, those deemed "too big to fail." Presumably, the Fed would be responsible for regulating all aspects of these entities' business activities.
This puts the Fed, a quasi-government entity with no real experience as a regulator, into uncharted waters. The Federal Reserve System was founded by Congress in 1913 "to provide the nation with a safer, more flexible, and more stable monetary and financial system." In short, it controls the supply of money. Now it is suddenly supposed to regulate the largest financial institutions in the country? How? By giving them more money?
Putting the Federal Reserve in charge of financial regulation is like putting arms manufacturers in charge of military policy. You're asking for trouble, in other words. Or at the very least a hairbrained approach. Then again, who knows? Maybe that's what we need. - Nathaniel Baker
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Is this what now passes for "analysis" at The Deal? We are first treated to a serving of the by now exceedingly tired soup de jour: "No one can be trusted to manage their own affairs; the government is the only answer". Thereafter Baker, despite his clear admiration for all things Obama, admits to being "a little uneasy" about the proposed expanded role of the Fed. Clearly the koolaid is readily to hand however, as he finishes by speculating that this "hairbrained approach" might be "what we need". This doesn't pass for even amusing reading, let alone an insightful look at the day's events. Please --- if you can do no better, at least put down the koolaid and step away from the keyboard.