en. Christopher J. Dodd (D-Conn.) introduced sweeping legislation Tuesday to reform financial regulation, in part by stripping the Federal Reserve of its regulatory responsibilities and creating a new federal agency charged with keeping banks in good health.
Best to kill that non-functioning aspect and create a new authority from scratch. Staff the new organization with people who are committed to actively regulating and who have appropriate backgrounds, including prosecuting fraud. Write such requirements into the enabling legislation and make them grounds for rejection of proposed candidates by congressional review. The needed organization would, for the first five years, more resemble a slaughterhouse than the Fed. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
If Washington can't pass a bill to audit the Fed, it's certainly not going to pass a bill to kill it.
Washington can't pass a bill to audit the Fed
The appropriate financial stability objectives of the central bank are those that involve providing liquidity, at a cost covering the central bank's opportunity cost of non-monetary financing, to illiquid but solvent financial institutions. Any action going beyond that, such as the recapitalisation of insolvent banks through quasi-fiscal subsidies, ought to be funded by the Treasury. The central bank should be involved only as an agent of the Treasury - an expert assistant. It should not put its own conventional or comprehensive balance sheet at risk. The two arguments against the central bank acting as a quasi-fiscal agent are, first, that acting as a quasi-fiscal agent may impair the central bank's ability to fulfil its macroeconomic stability mandate and, second, that it obscures responsibility and impedes accountability for what are in substance fiscal transfers. In the US such actions subvert the Constitution, which clearly states in Section 8, Clause 1, that the power to tax and spend rests with the Congress: "The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.". If, as happened in the USA on a vast scale, the central bank allows itself to be used as an off-budget and off-balance-sheet special purpose vehicle of the Treasury, and refuses to provide to the Congress some of the information essential for the quantification of the fiscal transfers it has made, the central bank not only subverts the constitution. By attempting to hide contingent commitments and to disguise de-facto subsidies by not divulging relevant information on the terms on which the central bank has offered financial assistance, it undermines its own independence and legitimacy and impairs political accountability for the use of public funds - `tax payers' money'. It is surprising that a country whose creation folklore attributes considerable significance to the principle of `no taxation without representation' would have condoned without much outcry such a blatant violation of the equally important principle of `no use of public funds without accountability'. This indeed amounts to a quiet usurpation of the power of the legislature by the central bank.
The appropriate financial stability objectives of the central bank are those that involve providing liquidity, at a cost covering the central bank's opportunity cost of non-monetary financing, to illiquid but solvent financial institutions.
Any action going beyond that, such as the recapitalisation of insolvent banks through quasi-fiscal subsidies, ought to be funded by the Treasury. The central bank should be involved only as an agent of the Treasury - an expert assistant. It should not put its own conventional or comprehensive balance sheet at risk.
The two arguments against the central bank acting as a quasi-fiscal agent are, first, that acting as a quasi-fiscal agent may impair the central bank's ability to fulfil its macroeconomic stability mandate and, second, that it obscures responsibility and impedes accountability for what are in substance fiscal transfers. In the US such actions subvert the Constitution, which clearly states in Section 8, Clause 1, that the power to tax and spend rests with the Congress: "The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.".
If, as happened in the USA on a vast scale, the central bank allows itself to be used as an off-budget and off-balance-sheet special purpose vehicle of the Treasury, and refuses to provide to the Congress some of the information essential for the quantification of the fiscal transfers it has made, the central bank not only subverts the constitution. By attempting to hide contingent commitments and to disguise de-facto subsidies by not divulging relevant information on the terms on which the central bank has offered financial assistance, it undermines its own independence and legitimacy and impairs political accountability for the use of public funds - `tax payers' money'. It is surprising that a country whose creation folklore attributes considerable significance to the principle of `no taxation without representation' would have condoned without much outcry such a blatant violation of the equally important principle of `no use of public funds without accountability'. This indeed amounts to a quiet usurpation of the power of the legislature by the central bank.
Reporting from Washington - The influential chairman of the Senate Banking Committee, often criticized for being too cozy with Wall Street, unveiled a sweeping new plan Tuesday to toughen oversight of the financial industry -- proposing changes even more dramatic than the Obama administration's at the risk of delaying passage of new rules this year. The plan by Sen. Christopher J. Dodd (D-Conn.) would shatter the existing regulatory structure, installing a new federal banking authority to take the place of four agencies, a bold step the Obama administration declined to take. "The financial crisis exposed a financial regulatory structure that was the product of historic accidents, one after another, over the past 80 years," Dodd said. "For decades, Washington has failed to deliver . . . substantial reform we need. If we fail again at this hour, our economy will be vulnerable to yet another crisis." But Dodd's decision to offer a plan significantly different than legislation moving through the House further complicates White House efforts to pass an overhaul by year's end, efforts already hampered by Republican opposition. It also promises to ratchet up the intense lobbying on Capitol Hill over the most far-reaching changes to financial rules since the Great Depression. Industry lobbyists have amassed a $200-million war chest to try to derail measures that threaten banking profits. Critics say Dodd's zeal to rein in Wall Street stands in stark contrast to a career spent as an ally of the financial industry, suggesting that his pro-consumer stance may stem from a difficult reelection fight looming next year.
The plan by Sen. Christopher J. Dodd (D-Conn.) would shatter the existing regulatory structure, installing a new federal banking authority to take the place of four agencies, a bold step the Obama administration declined to take.
"The financial crisis exposed a financial regulatory structure that was the product of historic accidents, one after another, over the past 80 years," Dodd said. "For decades, Washington has failed to deliver . . . substantial reform we need. If we fail again at this hour, our economy will be vulnerable to yet another crisis."
But Dodd's decision to offer a plan significantly different than legislation moving through the House further complicates White House efforts to pass an overhaul by year's end, efforts already hampered by Republican opposition. It also promises to ratchet up the intense lobbying on Capitol Hill over the most far-reaching changes to financial rules since the Great Depression. Industry lobbyists have amassed a $200-million war chest to try to derail measures that threaten banking profits.
Critics say Dodd's zeal to rein in Wall Street stands in stark contrast to a career spent as an ally of the financial industry, suggesting that his pro-consumer stance may stem from a difficult reelection fight looming next year.
Let's not forget either the source of this bold unification ideology or allies in the pews.
Sen. Schumer is quoted, "He [Paulson] is on the money when he calls for a more unified regulatory structure, although we would prefer a single regulator to the three he proposes." But Mr Paulson is quoted, "I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years." ... The fact that business classifications have multiplied exponentially during the the past 40 years should indicate the necessity of specialization in enforcement. But here we are, contemplating reinforcement of executive unitary theory as if three totalizing, central authorities appointed by a president could, actually, provide requisite regulatory relief to the market consumers whose purchasing "power" constitutes the GNP.
The fact that business classifications have multiplied exponentially during the the past 40 years should indicate the necessity of specialization in enforcement. But here we are, contemplating reinforcement of executive unitary theory as if three totalizing, central authorities appointed by a president could, actually, provide requisite regulatory relief to the market consumers whose purchasing "power" constitutes the GNP.
Othewise it's tempting to fall for the um lone revolting pimp plot. Diversity is the key to economic and political evolution.
First I gotta watch La Commune though. It's three disks and the borrowing period is seven days. I'm pretty sure I'll fall asleep during the screening of each DVD at least twice, and no way is the Militant Electrician going to turn over time after school but before my bedtime. I'm pre-senior, you know.
Keep me informed. Diversity is the key to economic and political evolution.
