There is an effort underway to install the Federal Reserve as super-regulator for all banks and financial institutions, concentrating power in one institution. I find these efforts one of the most disturbing outgrowths of the financial crisis we have been witnessing. Such a system is sure to increase the power of too big to fail financial institutions and weaken small community banks. Moreover, the Federal Reserve is the one institution which should
not take on a greater role in the U.S. economy. It has failed in its present role by pushing interest rates too low for too long and has shown a complete lack of regulatory courage in preventing excesses that resulted from this policy.
The Obama Administration as defenders of the status quo
The Obama Administration is at the front of the queue advocating for this line of regulatory reform. In my view, this has weakened the Administration, as the American people have grown to distrust the Federal Reserve as witnessed by the broad support for the Federal Reserve Transparency Act of 2009 proposed by Ron Paul to audit the Fed (H.R. 1207).
It is clear to most everyone now that actions taken by the Federal Reserve led to excessive risk taking in the financial services industry, particularly by large institutions. The risk posed by these institutions is what brought the global financial system to the verge of collapse.
Why then has the Obama Administration been supporting large institutions through large bailouts without requiring any changes in leadership or compensation? Why is the Administration proposing to put the one regulatory institution most Americans feel failed in the period leading up to crisis in charge of all regulation? Do they not realize that this is an outrage to which the American people are wise? Do they not realize that this lessens any sense that Obama is ‘change we can believe in,’ hurting his chance at enacting legislation elsewhere?
Barack Obama was elected despite widespread concern about inexperience because he was perceived as a change agent who could demonstrate the power of government to do good in a time of crisis. Yet, the narrative now being crafted through these policy missteps is one of big government that enables the well-connected and powerful at the expense of the common man. This theme was evident with the financial bailouts. It was evident again in regards to how differently the automakers were treated. And it is evident again in how much sway lobbyists have held in the healthcare debate.
So, Obama’s poll numbers have slipped. They are not down because he is running left and outsourcing his policy decisions to Congress as some might have you believe. Disaffection with the administration’s policies are as great in his base of supporters as they are from independents. Obama’s numbers are down because he campaigned as a man of change, but has governed as a defender of the status quo.
And when a country is beset by crisis and economic calamity, the status quo is not acceptable.
The attack of Sheila Bair
Enter Sheila Bair. She has not been towing the party line on regulatory reform. She rightly sees a problem with having a super-regulator to fix the problems at the heart of the financial crisis. This has not sat well with the Administration. But, she has continued to be a dissonant voice, most recently in an Op-Ed which appeared this past Monday in the New York Times. Title? The Case Against a Super-Regulator.
The Obama administration has proposed sweeping changes to our financial regulatory system.
