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Uptick At All Costs

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I apologize for being rather late to the gun on this one, but over the weekend the Treasury Department announced (and now Secretary Paulson has officially presented it) that it would support the Fed in its newfound emphasis of “growth at all costs.” I get this from language, such as this:

The new model includes giving sweeping new oversight powers to the Fed as a Market Stability Regulator. It would gain the power to investigate any activities of financial institutions that threaten US economic stability, gather information and combat risks to the financial system as a whole.

This is rather ambiguous from the outset, as are most proposals. Hopefully, in practice, this is not an expansion of regulatory powers beyond the investment banks, as the Fed’s reach of power would quickly enter the realm of the SEC (if it hasn’t already with its actions with Bear Sterns).

The big picture behind this plan–its overall goal–is to improve and streamline financial regulation in the US. This would mean removing much of the ambiguity in the system today, with thrifts being regulated separately from national banks, etc. If the Fed’s regulatory scope expands much, this would work against Paulson’s plan.

According to CNN, there were three short-term parts of the proposal:

  • Formalizing the President’s working group on financial markets, creating an inter-agency coordinator for systemic risk, market integrity, consumer protection and capital market competitiveness
  • Establishing a commission to oversee mortgages and upgrade state regulations (funny, because they superseded state regulations earlier in the Bush Presidency via the Office of the Comptroller of the Currency to allow questionable lending)
  • Increasing the scope if the Fed’s information gathering with regards to investment banks

The rest of the proposal would be longer term in nature and its development would be adjusted based on further analysis of the issues.

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Written by walonline

March 31, 2008 at 11:37 am

Posted in Regulation

Tagged with , ,

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