Let Friday, early news about a plan to broadly expand the power of the Federal Reserve was released. Evidently the plan will be formally announced in a speech by Treasury Secretary Paulson.
I’m a bit out of breath.
McGehee was the first I saw to make mention that something like this was seriously in the works. He expressed some concern which I share.
Seeing some more details of the plan (in the Des Moines Register Saturday morning) gave me reason to sit back and think. The plan calls for 3 regulators, essentially eliminates any distinction between banks and thrifts, and would make the Fed the “primary regulator of market stability”, overseeing all segments of the financial services industry.
And the Democrats love it. That should make us feel better.
I hate to pass judgment on this plan before I’ve seen more details, but on the face of it, my sitting back and thinking still left a sour taste in my mouth. I am dreadfully afraid that this is the beginning of the downfall of our free market system.
I think we get very worried about the downward volatility of our investment markets. And these efforts seem to be geared toward addressing that issue. As it stands, the fact that there are controls in place to stop trading on the major exchanges when downward spirals hit is already a concern (although an understandable action due to the use of computers to both manage the market AND automate investment decisions). The concern I have is that with more regulation will come more stability (what is stated as part of the goal, actually), which is not necessarily good. Although (as I’ve said before) I’m not a Market expert, it seems to me that the Market needs to be able to exert appropriate pressures without controls in order to provide real value and ensure that trading activity and results are fair and the result of real business success or failure. The idea that business failure should not have consequences is wrong. The idea that business success should not have rewards is equally wrong. Both of these extremes, unfortunately, end up being impacted by “stabilizing” the Market.
If the Fed can constrain itself to dealing with factors that are inappropriately impacting the Economy and Markets, that would be great, but doubtful. More likely the Fed will attempt to control the Markets and unduly influence price, performance, results, success, and with all that we will have a dramatically timid Market go forward.
We’ve got to get out of this mentality that there can’t be losers. We are becoming more and more ineffective on the international scene, and these changes will just perpetuate that issue.
I know I said a few days ago that I could support Obama’s plan to strengthen the power of the Fed. I was wrong. I should have known better.
I’m also interested in knowing, with this set of changes, what becomes of the role of the SEC? It might not change, but I wouldn’t count on it.
I’m afraid this looks like an idea that just going to take us on a trip to becoming second rate. I think we’re better than this.
I’m interested in your opinion on this too, so please share your thoughts.