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Fed as super-regulator a super bad idea
Susan Lee
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TEXT OF COMMENTARY
Kai Ryssdal: There's a wide range of options open to Congress and the White House as they try to work out the details of these new regulations. Commentator and economist Susan Lee thinks one of those options is one too many.
SUSAN LEE: One totally obvious thing has emerged from our current mess: the need for a better, smarter way to regulate the financial system. And the financial-reform lobby has been furiously generating ideas.
So far there have been zillions of suggestions, and I've only heard one that stands out as nonsense: making the Federal Reserve into a super-regulator over the entire financial system.
It's easy to see why this idea is appealing. Right now, regulatory authority is divided among dozens of state and federal agencies. And so it's possible for somebody like Bernie Madoff, whose business was regulated by three different entities, to elude detection.
So maybe, just maybe, one regulatory superpower could nail criminal activity by individuals, or even mischief by a single institution. But that's way different than the notion that one giant regulator can spot the beginning of systemic risk.
The current Fed failed to sight a bunch of alarming problems that were occurring system-wide. It didn't notice the over-leveraged condition at many bank-holding companies; it was oblivious to the bubble blowing up the real-estate market; it ignored predatory lending practices; and it didn't recognize that a little oversight of the derivative markets was necessary.
The problem, simply, is that a super-regulator requires super-people. People who have super foresight. Since no such people exist, pretending they do will only give us a false sense of security. And we'll feel betrayed the next time a crisis hits.
If you doubt me, consider that the creation of this super-regulator is being left to a collection of some of the least super people on the planet. The U.S. Congress. And at the head of this effort is Barney Frank. The same person who had the foresight to declare that the financial position of Fannie Mae and Freddy Mac was absolutely solid. He made this declaration just weeks before those institutions collapsed into the hands of the federal government. I rest my case.
RYSSDAL: Susan Lee is an economist in New York City.
As Dennis Kuchinich accurately put in the congressional record: the Federal Reserve is a Federal as Federal Express. I know this is arcana but it was a lack of regulation that got us into this swamp and we need checks and balances to stop run away systems. The fed has none.
I did not hear the segment but if the premise is that the Federal Reserve Bank ought not be the prime regulator, I agree. I do think there ought to be a regulatory authority, but it should be based on the authority of the United States government.
If susan lee is an expert. Then I'm an expert. And you are an expert. We're all experts.
It doesn't matter if you have a regulator or no regulator, you need a system where descent can be heard and considered. She said there was no super man? Well, what about the guy that caught Madoff 10 years ago? The problem was there was so much money stuffed in ears and pockets, small voices weren't heard.
Sure everyone knows there was a bubble, but it kept going up. It's very hard for people to argue with success at the market year after year after calling a bubble. Which Senator would want to be the one to ruin the party?
Readers need to be suspicious of someone who attacks Barney Frank, Freddie, and Fanny. As I recall, Freddie and Fannie took on a mess of bad paper which made their weak position untenable. (Please correct if wrong!) Barney Frank is hardly a paragon. All three made mistakes. Were they really critical players in run up to disaster? Doesn't look that way here. Ms. Lee sounds like she's scaring up straw men (and women) to divert attention from prominent culprits. And what regulatory structure would she like to she? IF ANY??
I seem to recall that during the Clinton era that Brooksley E. Born of the Commodity Futures Trading Commission was going to regulate many of the derivatives that got us into this mess but Wall Street complained so much that a law was passed to prevent regulation.
Senator Phil Gramm carried the water for Wall Street and we got the Commodity Futures Modernization Act.
Seems no one really cares about the unintended consequences of bad legislation as long as there is a payoff. What this Phil doing these days?
It's great for Susan Lee to come on your program to demonstrate her expertise by discussing the pitfalls of federal regulation — and to take a swipe at Barney Frank.
But does this "expert" have one single idea how to fix the system? No. You even introduced her by mentioning the "wide range of options." So which one does Ms. Lee suggest? We'll never know.
It's one thing to have an "expert" come on your show to talk about past mistakes, but if she's an expert, shouldn't she do more than just whine and hang up?
