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Nickelless
Administrator
USA
5580 Posts |
 Posted - 06/19/2008 : 16:41:27
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Just saw this online...
By MARTIN CRUTSINGER
AP Economics Writer
WASHINGTON (AP) — The Bush administration said Thursday that the Federal Reserve should be given sweeping new powers to protect the integrity of the financial system, contending that this year’s market turmoil has exposed a badly outdated regulatory system.
While acknowledging that debate on the issue in Congress would take time, Treasury Secretary Henry Paulson said the discussion should begin without delay because the stakes for the financial system are so high.
“We should quickly consider how to most appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene to protect the system so they can carry out the role our nation has come to expect — stabilizing the overall system when it is threatened,” he said in a speech to a women’s banking group in Washington.
Paulson said the near-collapse of Bear Stearns, once the country’s fifth largest investment bank, had “placed in stark relief the outdated nature of our financial regulatory system.”
Because of the problems highlighted by the ongoing credit crisis, Paulson said, “We must dramatically expand our attention to the fundamental needs of our system and move much more quickly to update our regulatory structure.”
Later, responding to an audience question about how quickly the reform could be approved, Paulson said, “Do I have an expectation that it will get done this year. Probably not ... but it needs to be focused on soon.”
The Fed moved in March — as Bear Stearns teetered on the brink of collapse — to provide $30 billion to facilitate the sale of Bear Stearns to JP Morgan Chase & Co. and for the first time to begin lending money to other investment banks, something it has continued to do as it fights to calm financial markets in the wake of a severe credit crisis.
Paulson said the country had come to rely on the Fed in times of crisis, citing the central bank’s actions to broker a rescue of giant hedge fund Long Term Capital Management in 1998 during the Asian currency crisis and the Bear Stearns episode this year.
“Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk,” Paulson said. “But, as we noted in our blueprint, the Fed has neither the clear statutory authority nor the mandate to anticipate and deal with risk across our entire financial system.”
On March 31, Paulson released a blueprint that proposed the most sweeping overhaul of the nation’s financial regulatory system since the stock market crash of 1929. It would change how the government regulates thousands of businesses, from the nation’s biggest banks and investment houses to local insurance agents and mortgage brokers.
The blueprint urged Congress to consider ways to expand the Fed’s powers to oversee investment banks, but Paulson did not set out a time frame for when this should occur. However, on Thursday he said that work should begin on the overhaul “very quickly” and should proceed with a sense of urgency.
Paulson’s blueprint proposes giving the Fed more power to protect the stability of the entire financial system, but under the plan the central bank would lose its authority to oversee day-to-day bank supervision, which would be transferred to a single bank regulatory agency, merging the powers of five current federal bank regulatory agencies.
Fed officials have said they must continue to have day-to-day supervision of commercial banks to monitor the banking system’s health.
Paulson said any overhaul needed to be carefully balanced to make sure that expanded Fed powers to provide emergency support did not lead investment banks to pursue more risky strategies in a belief that the central bank would bail them out if they got in trouble.
“We must limit the perception that some institutions are either too big to fail or too interconnected to fail,” he said.
Paulson’s comments came on the same day that two former Bear Stearns managers were arrested on securities fraud and other charges. The Justice Department announced that more than 400 real estate industry players had been indicted since March in a nationwide crackdown on incidents of mortgage fraud stemming from the country’s housing crisis.
House Financial Services Chairman Barney Frank, D-Mass., has announced his panel will hold hearings on Paulson’s recommendations later this year but Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has set no date for committee hearings. Neither panel is expected to take up actual legislation on the overhaul proposals until next year when a new administration will be in office.
Currently, the Fed and the Securities and Exchange Commission, which has the primary oversight over investment banks such as Bear Stearns, are working on a formal memorandum of understanding to guide their joint oversight.
Fed Vice Chairman Donald Kohn told a Senate Banking subcommittee on Thursday that the Fed recognized opening its borrowing window to investment banks was “an extraordinary step, but considered it necessary” to prevent a more adverse impact on the overall economy. He said the Fed currently has staffers on site at the four largest investment banks in the country.
Democrats have complained Paulson’s regulatory proposals don’t go far enough to deal with abuses in mortgage lending while state officials have criticized what they see as an unwanted federal intrusion on their turf.
On the overall economy, Paulson said Thursday that the nation was going through a “rough period” which was being mitigated by quick passage of the economic stimulus program.
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Edited by - Nickelless on 06/19/2008 16:46:44 |
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 06/21/2008 : 09:32:20
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Just more proof the Fed can't do what people want it to do.
1. control inflation... with the way Congress spends.. that is very hard.
2. protect the dollar... with the way Congress spends.. that is nearly impossible
3. protect the system... with the way investors leverage themselves ... that is also impossible without the bailout of banks every so often.
4. lender of last resort... works great until they actually need a lender of last resort. Then the U.S. government (taxpayers) are the true underwriter of those loans.
I would hate to be on the Fed board of governors. You are screwed no matter what you do.
-SWUSC |
`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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fb101
Administrator
USA
2856 Posts |
Posted - 06/25/2008 : 10:52:35
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Yes, we are screwed no matter what they do.
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Treasury chief: Fed needs more protective powers
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