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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Giordano Bruno who wrote (390162)	7/9/2009 7:24:40 PM
From: Terry Maloney	Read Replies (1) \| Respond to of 436258

I edited my post. <g>

To: Giordano Bruno who wrote (390162)	7/9/2009 8:12:55 PM
From: MythMan	1 Recommendation Respond to of 436258

July 10, 2009 Lawmakers Are Warned Against Expanding Fed’s Power By EDMUND L. ANDREWS WASHINGTON — Two economists with long-standing ties to the Federal Reserve warned Congress on Thursday that it would be a mistake to give the Fed broad power to supervise “systemic risk” and financial institutions that are deemed “too big to fail.” In what is shaping up as a fierce political battle that cuts across party lines, one of the central bank’s most prominent historians told a House panel that the Federal Reserve had consistently failed to recognize financial catastrophes until they were well under way. “I do not know of any clear examples in which the Federal Reserve acted in advance to head off a crisis or a series of banking or financial failures,” said Allan H. Meltzer, professor of economics at Carnegie-Mellon University and author of a comprehensive history of the Fed. In written testimony prepared for the House Financial Services Committee, Mr. Meltzer ticked off a long list of financial collapses — the Latin American debt crisis of the 1980s, the savings-and loan collapse of the early 1990s, the collapse of the dot-com bubble and the recent binge in reckless mortgages — and argued that the Fed had either failed to take preventive action or made things worse. “We all know that the Federal Reserve did nothing to prevent the current credit crisis,” Mr. Meltzer said. “It has not recognized that its actions promoted moral hazard and encouraged incentives to take risk.” An even broader warning came from John B. Taylor, a top Treasury official under President George W. Bush who was considered a potential candidate to succeed Alan Greenspan as chairman of the Federal Reserve. Mr. Taylor argued that expanding the Fed’s power as a super-regulator, responsible for monitoring risks across the economy as well as regulating giant financial institutions, would create conflicts of interest, reduce its credibility and jeopardize its political independence. Giving the Fed broad new responsibilities, Mr. Taylor warned, would dilute and complicate its central mission of controlling the nation’s money supply to keep inflation low and employment as high as possible. “My experience in government and elsewhere is that institutions work best when they focus on a limited set of understandable goals,” he said in his written testimony, adding that the Fed’s credibility had already been damaged by its messy role last year in getting Bank of America to acquire Merrill Lynch. The administration is proposing to make the Fed responsible for identifying “systemic risks,” like the bubble in housing prices and the explosion of reckless mortgage lending that started the worst financial crisis since the Great Depression. But the proposal is highly controversial. Banking and Wall Street executives generally support the idea, as do current and former officials at the Federal Reserve and some Democratic lawmakers, like Representative Barney Frank, chairman of the House Financial Services Committee. But lawmakers are sharply divided. Many Democrats have criticized the Fed in recent months for being too secretive as it has helped bail out failing institutions like the American International Group. Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, is openly skeptical about giving the Fed more power. But many conservative lawmakers and analysts are also opposed, arguing that it would amount to an expansion of “big government” and greater intrusion by regulators. Mr. Taylor and Mr. Meltzer are both conservatives. Mr. Taylor was a loyal member of the Bush administration, though he is best known among economists as the author of the “Taylor Rule,” a widely used formula to predict Fed policy decisions. Mr. Meltzer is a fellow at the American Enterprise Institute, a right-of-center policy research group in Washington, but he has long had entree to the top ranks of Fed policymakers. His three-volume history of the Federal Reserve, based on exhaustive research of Fed documents and records dating back to its creation, is considered the most comprehensive history of the central bank thus far.