Bernanke Grilling May Weaken Case for Expanded Fed Oversight Powers

June 26, 2009 by · Leave a Comment
Filed under: Policy News 

Editor’s Note: After the report of the internal Fed email about disclosure of losses at Merrill Lynch being delayed, it does possibly impact the credibility of the Federal Reserve.  My biggest reservation is with the Fed who dictates monetary policy, having the ability to deal with systematic risk.  The Fed has a track record with financial crisis es come along, to lower interest rates to artificially low levels, bailout the bad actors and then pump money into the system to stimulate through the crisis.

Yes it does get us through the tough times but I see it as the us collective wanting to treat the symptoms and not the cause.   The easy way out is usually not the best way, especially in the long run.  With this track record in place, we are now talking about giving the authority who practices lose monetary policy the ability to selectively pick the winners and losers when they usually create the problem from the initial monetary policy.   I hope others understand this and agree that more concentrated power is not better.

News (Bloomberg):

Chairman Ben S. Bernanke’s grilling by legislators over Federal Reserve conduct in Bank of America Corp.’s takeover of Merrill Lynch & Co. may reduce the odds the central bank will win new powers in a regulatory overhaul.

Bernanke failed to resolve some lawmakers’ questions on whether the Fed bullied executives and stepped over other regulators in the name of financial stability in a three-hour congressional hearing yesterday. Republicans asserted the Fed interfered with commercial decisions, and Democrats said it should have wrung more concessions in return for taxpayer aid.

Criticisms by members of both parties are likely to diminish support for the Obama administration’s plan to make the Fed the single agency responsible for the largest and most interconnected financial institutions. The proposal, part of a broad revamp of bank regulation, would give the Fed power to dictate standards on capital, liquidity and risk management.

“It may be more important for us to find another systemic risk regulator,” Representative Paul Kanjorski, a Pennsylvania Democrat and member of the House Oversight Committee where Bernanke appeared, said in a Bloomberg Television interview after the hearing. Congress should “hesitate to put any more authority on the back of the Federal Reserve,” he said.

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