Busted: Bankers and The Global Economy

July 8, 2008

The Fed: Power and Protection Rules

The Federal Reserve, with new power in hand, intends to issue new rules next week aimed at protecting future home buyers from scandalous lending practices. The media has proclaimed the new rules are the most sweeping response to a housing crisis that has propelled foreclosures to record highs. Considering what is happening to American home buyers, this might considered to be true. The most sweeping response has been the bailout of Wall Street beginning with Bear Stearns in this writer’s humble opinion.

The fact is that there are plenty of regulations. Regulations did not stop bankers from breaking the law with predatory loans, nor stopped investors from piling on with superficial investments created by the same banking bodies. Regulations have not stopped the housing crisis, the decline of ratings agencies, the decline of international bank holding firms, nor the fall of Wall Street from its pinnacle of grandeur. While many, including this writer, want to have kind things to say, kind things are not in the cards.

Fed Chairman Ben Bernanke spoke about the challenges confronting policymakers in trying to stabilize a shaky U.S. financial system. Bernanke proposed the possibility of giving squeezed Wall Street firms more time to use the central bank’s emergency loan program.

The newly adopted rules are designed to crack down on a range of generally unnamed shady lending practices that have plagued the country. Consumer groups have complained that the proposed rules aren’t strong enough, while mortgage lenders worry that they are too tough and could crimp customers’ choices. Bankers know of the economic independence of Americans on credit, fearing loss of business and prestige. Most Americans know of no other way than to borrow to support their lifestyles.

The Bush administration has proposed revamping the nation’s financial regulatory structure, making the Fed in charge of financial market stability. The Fed will lose daily supervision of big banks as part of that plan. Bernanke is unhappy with that provision. He claims the Fed must maintain this power if it is to be an effective manager of financial stability.

The SEC has agreed to share information with the Fed to bolster its knowledge and power. The SEC is also linked to secret data supervising Americans and terrorists. Could this information become useful to the Federal Reserve in the future? Since none of this information is monitored by public bodies and a new court system has been recently set up to monitor communications in the United States, only time will tell.

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