Obama’s Superregulator

The U.S. Federal Reserve
The U.S. Federal Reserve


Barack Obama and Timothy Geithner are proposing a changing the regulatory structure that is scary for any democrat (small D), and frightening for capitalists.

The Administration is considering a proposal to make the Federal Reserve, which by law is an independent entity from the rest of the government, into a ‘supercop’ to oversee the ‘too big to fail’ companies that have put the nation at risk during this economic downturn.

Treasury Secretary Timothy Geithner and other officials made it clear they were not inclined to divide the job among various regulators as has been suggested by industry and some federal regulators. Geithner told the group that one organization needs to be held responsible for monitoring systemwide risk.  “Committees don’t make decisions,” said Geithner, according to one participant.

Now, clearly more regulations are coming; that ship has sailed.  And if Misters Geithner and Obama want a single regulator to oversee the large corporations, more power to them.

My main problem is with the Federal Reserve being the entity with the power.

The Federal Reserve is almost like the Supreme Court.  Their members are voted to 7 year terms by the Senate.  But otherwise, they are a virtually independent entity without any checks and balances.  Oh sure, they have to come and testify to Congress, but in fact they are not responsible to Congress.  Their mandate is to, first and foremost, protect the country for banking catastrophes by maintaining adequate financial reserves.

Now, in my humble opinion, the Fed definitely needs to be an integral part of the regulatory structure.  No organization on the planet has better information on the day-to-day goings on in the U.S. economy.  But to have a bunch of Federal Reserve Governors, unelected and unanswerable to anyone, making the life and death decisions of large corporations and their thousands of employees to me seems to violate the spirit of the checks-and-balances ideal in the Constitution.

In all fairness, Geithner appears open to the latter suggestion. A spokesman said Geithner also is open to creating a council to “coordinate among the various regulators, including the systemic risk regulator.”  This is what the industry officials want, of course.  But we should be wary of giving any entity too much power in the name of the greater good.  The power to destroy is the most dangerous power the government has, and to hand it over to a bunch of intelligent but unelected individuals to me is a scary thought.