Monday, October 26, 2009

Super Fed to the Rescue!

This morning I began quickly reading this WSJ article touting six specific regulations that its authors claim would quickly stabilize our nation’s problematic financial markets. The authors state:
“Our country needs to strive for transparency in financial-company balance sheets and recognize the direct correlation between clarity in asset value and how financial enterprises are valued by investors.”
OK, that sounds good, but the very next sentence caused me some concern. The following paragraph made me wonder whether the authors were sane. Finally when I reached the first of their six suggestions, “Make the Federal Reserve the super-regulator responsible for overseeing systemic risk,” I scrolled to see who the authors were.

Judah S. Kraushaar is the head of a hedge fund. Sandy Weill is the former CEO of Citigroup. He is most notable for having driven that corporate giant down the toilet while simultaneously playing a significant role in fomenting the current economic crisis.

Together the two men wrote a 2006 book that touted Weill’s magnificence as a businessman-philanthropist. Of course, no one really expects objectivity in such a work. But these men’s WSJ op-ed demonstrates the same kind of fictional hope found in their book (which can presently be purchased new in hardback from some sellers for $0.01.)

Making the Fed — a privately owned for-profit bank that distributes unknown amounts taxpayer dollars to unknown entities and that cannot itself be audited (being an unchecked government within a government) — the super-regulator in charge of our nation’s entire financial system is a suggestion so stunning in its preposterousness that it boggles the mind.

The Fed has already demonstrably failed in both of its main missions, which are to stabilize the monetary system and to ensure full employment (a mission added in 1978 that has essentially made the Fed’s primary job impossible). As one commenter on the article noted:
“The Fed was chartered to protect the value of the Dollar. In 1913, the dollar was worth 1/20th of an ounce of gold. Today, it is worth less than 1/1000th of an ounce, a decline by a factor of 50. In that period, the per capita income in constant dollars has risen less than 6 fold. By these metrics, the Fed has failed miserably. Yet, what do we propose? To give the Fed even more power and control.”
Weill’s and Kraushaar’s five other suggestions are cut from the same cloth, asserting the superhuman ability of omnipotent regulatory technocrats to achieve nirvana via a federal Rube Goldberg process.

Fortunately, a number of WSJ readers take Messrs. Weill and Kraushaar to task for their lack of credibility and the utter silliness of their suggestions. (See comments.) Some comments are simply rants, while others are quite creative. The commenters provide some interesting sidelights as well. Varying views about the usefulness of the Glass-Stegall Act of 1933 and the implications of its repeal in 1999 are expressed, and differing views about restrictions on executive pay are offered.

It’s not that Weill and Kraushaar are totally wrong in their observations, but their assessment of the situation ignores many important factors, including Mr. Weill’s and the government’s culpability in the crisis. Moreover, their solutions fail to consider such political realities as to whether politicians will vote to give the Fed power to police the politicians and the institutions they create, manage, and enable. Or perhaps that side of the equation is simply uninteresting to those super handymen whose toolboxes contain only hammers (and perhaps sickles).

If Weill’s past performance and Kraushaar’s past fawning about Weill’s performance weren’t already enough to make laughingstocks of the two men, their ridiculous WSJ article ought to finish the job. The solution to the failure of big government and its big business allies is not more big government intertwined with big business. It’s amazing to see such creative minds suffer from such an abject lack of creative imagination.


Charles D said...

Exactly so. Instead of making the Fed the regulator, we need to regulate the Fed. Better yet, we should federalize the Fed and make it part of the Treasury so there can be a possibility of real accountability to the people.

Scott Hinrichs said...

Those that are steeped in the lore of centralized banking will tell us that doing that would be a bad idea. They claim that politicizing the central bank would prove hazardous. Well, it's too late for that. So, unless we're going to get rid of the Fed altogether, we should make it fully accountable.