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« White House Ejects Lobbyists From Federal Advisory Boards | Main | Climategate: The Worst Scientific Scandal Of Our Generation »
Sunday
Nov292009

The Right Reform For The Fed (Op-Ed By Chairman Ben Bernanke)

By Federal Reserve Chairman Ben Bernanke

These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution's ability to foster financial stability and to promote economic recovery without inflation.

The proposed measures are at least in part the product of public anger over the financial crisis and the government's response, particularly the rescues of some individual financial firms. The government's actions to avoid financial collapse last fall -- as distasteful and unfair as some undoubtedly were -- were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity, with profound consequences for our economy and society. (I know something about this, having spent my career prior to public service studying these issues.) My colleagues at the Federal Reserve and I were determined not to allow that to happen.

[Get ready, here comes the understatement of 2009:]

The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis. We have extensively reviewed our performance and moved aggressively to fix the problems.

Video: Bernanke's Failed CNBC Predictions

Working with other agencies, we have toughened our rules and oversight. We will be requiring banks to hold more capital and liquidity and to structure compensation packages in ways that limit excessive risk-taking. We are taking more explicit account of risks to the financial system as a whole.

We are also supplementing bank examination staffs with teams of economists, financial market specialists and other experts. This combination of expertise, a unique strength of the Fed, helped bring credibility and clarity to the "stress tests" of the banking system conducted in the spring. These tests were led by the Fed and marked a turning point in public confidence in the banking system.

There is a strong case for a continued role for the Federal Reserve in bank supervision. Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks, as demonstrated by the success of the stress tests.

Continue reading at the Washington Post >>

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Ron Paul said a few weeks ago that the process to force a Fed audit will likely take between 12-24 months to resolve.  Even then it still must be signed by the President (not likely given signals).  Still Bernanke obviously feels the heat, and it's nice to see him sweat to make his case.  Fortunately, many in the Senate do not believe the Fed deserves it's current regulatory authority let alone the increase in Fed power that Obama, Geithner and Summers are proposing.

The battle continues.

 

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Reader Comments (10)

http://www.nytimes.com/2009/11/29/business/economy/29gret.html?em
A ROBUST economic recovery in 2010 is certainly on most investors’ wish lists as this year draws to a close. A return to prosperity would not only mean an end to our long financial nightmare, but it would also buttress a rebounding stock market, one of 2009’s few bright spots.
Nov 29, 2009 at 11:53 PM | Registered CommenterDailyBail
http://www.thepittsburghchannel.com/video/21718344/index.html

$50K Tentatively Approved In Middle-Finger Case
Butler Man Flipped Bird At Pittsburgh Police Officer
Nov 29, 2009 at 11:54 PM | Registered CommenterDailyBail
Nov 29, 2009 at 11:54 PM | Registered CommenterDailyBail
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/27/AR2009112702135.html
Days of wine and poses
Vintners Michaele & Tareq Salahi drink deeply from life, but not all is so sparkling
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Excellent expose on the couple who crashed the White House...

They epitomize everything that's wrong with this country...
Nov 29, 2009 at 11:56 PM | Registered CommenterDailyBail
Nov 29, 2009 at 11:58 PM | Registered CommenterDailyBail
$50K Tentatively Approved In Middle-Finger Case
Butler Man Flipped Bird At Pittsburgh Police Officer

I'll never be able to listen to "Free Bird" the same way again. This was a funny story.
Nov 30, 2009 at 12:08 AM | Unregistered CommenterJames H
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQS1SZ95x778
Bloomberg's reaction to Bernanke's editorial...
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Cops need to learn a lesson about abuse of power...loved that story...
Nov 30, 2009 at 12:26 AM | Registered CommenterDailyBail
Check this out. The old pink paper (Financial Times) estimates that world govts. will borrow or roll over in excess of $12T this year. I know some of that is very short-term (e.g. 3 months), but still, that figure represents c. 1/5 of the entire world economy. That's 20% of the world economy in the form of debt. And we're just getting started. Like one of my favorite economists likes to say, "When you start borrowing money just to pay the interest...that's when you're f***ed."

http://www.ft.com/cms/s/0/44e487fa-5169-11de-84c3-00144feabdc0.html?nclick_check=1
Nov 30, 2009 at 1:01 AM | Unregistered CommenterJames H
I would sooner take medical advice from Dr. Kevorkian than trust Bernanke on banking.
Nov 30, 2009 at 11:06 AM | Unregistered CommenterSonic Ninja Kitty
amen...
Nov 30, 2009 at 11:40 PM | Registered CommenterDailyBail

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