And Next Mark Will Ask for A Pony
Slowly moving back into everything, and so catching up with Mark Thoma’s use of Paul Volcker as his latest line of Defense of Giving the Fed More Regulatory Power. (Amusing in itself, given Volcker’s description of the Fed before he was Owned by the Obama Administration.)
I like Thoma (a lot more than he likes me) and his professional work is clean and clear. (Judging by his videos, he’s also the second best college-level Econometrics teacher I’ve ever seen—and it’s no crime to be behind Peter Loeb in that regard.)
But he’s an Incurable Optimist, especially in his blogging. For instance:
If we ask tough questions and insist that the Fed take action in response to the problems that are uncovered, oversight can be improved without moving the authority outside of the Fed.
The English translation of that is: Better the Devil We Know Has Already Failed and that doesn’t have—or appear to want—the Governance Skills to Do the Job Required.
Ken:
Did you ever wonder how Main Street feels when an economist talks of irrational exurberance, cyclical, or structural economic issues? It almost as if they talk beyond the issues impacting every day life. “Life is but a dream”
“In a Wonderland they lie, Dreaming as the days go by, Dreaming as the summers die; Ever drifting down the stream– Lingering in the golden gleam– Life, what is it but a dream? “
Mark Thoma backs a man he likes, and Volcker an institution with which he’s forever tied….
Whether or not we agree on the role the Fed should play, we must admit that Bernanke is playing a nice game: after a letter of recommendation sent to the congress, now he’s seeking an audit on AIG . As I wrote in a recent article, he’s becoming a real politician….
http://www.market-melange.com/2010/01/16/about-bernanke-the-fed-and-its-new-mandate-regulation/
Gregory
For a while, one of the GOP jihadists’ talking points was “get rid of the IRS”. Since every government that ever existed raised revenue to fund operations, this idea raised a question that was never answered. What would replace the IRS?
We have replaced regulatory agencies which had not lived up to expectations before. In at least one case, the replaced agency in question provided the vast majority of staff and leadership for the new agency.
In the proposal to move regulatory oversight somewhere other than the Fed, we are faced with the need to staff up with inspectors and supervisors and lawyers and such. It would be a good idea to hire as many experienced people as we can get. My suspicion is that, between the various financial regulatory agencies now in existence, we have too few experienced regulators, so we can’t simply strip a bunch of people out of agencies other than the Fed. Fed staff will be, should be, the backbone of any successor bank regulatory agency.
We will need to watch the watchers. Banks will immediately try to co-opt whatever agency is set up to regulate it. They will immediately begin lobbying Congress and whatever hierarchy exists above the regulator to weaken oversight. Just like they would with the Fed.
The issues don’t change, just because we relocate regulatory authority. If the Fed remains the bank regulator, we will need to make them behave. The new agency will have to watched. In the end, what’s in a name. Bickering over the name seems the wrong place to be putting our efforts. It’s way easier than keeping regulators at their task.