New national economic plan: Federal Reserve’s power will be hugely increased

Monday, March 31st, 2008 

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CNN reports that Treasury Secretary Paulson is preparing to unveil a plan that would basically do the exact opposite of abolishing the Federal Reserve- the plan will grant the Fed nearly unlimited powers of regulation of oversight.

“One of the most dramatic changes would extend the powers of the Federal Reserve — designed to regulate the commercial banking industry — to oversight of virtually the entire financial industry.”

CNN writes:

“The banking and financial industry regulation structure has been developed over decades, from the establishment of the national bank charter in 1863 to the creation of the Federal Reserve system in 1913 to recent changes made in response to other crises. Now, however the ever-expanding complexities of global markets have largely outgrown some of the structure’s component parts, creating weaknesses and redundancies.

Paulson will propose the Federal Reserve have authority to look at the financial status of any institution that could affect market stability; the Securities and Exchange Commission merge with the Commodity Futures Trading Commission; stock exchanges have more room for self-regulation; and bank supervision be consolidated into one regulator, according to Brookly McLaughlin, another department spokeswoman.”

Don’t look to Congress to scale back these drastic power increases.

“Nearly all of the proposals will require the approval of Congress, where Democrats are already at work on their own proposals. Sen. Charles Schumer, D-New York, said that Democrats “agree with large parts” of Paulson’s plan but think the proposals should go further.”

The Boston Herald elucidates some further points:

• “The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.”
• “Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies. By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.”

It frightens me to see that power is being even further consolidated behind the tightly closed doors of the Federal Reserve. Giving near-limitless regulatory power to a group that conducts its business under little or no regulation seems to me to be self-defeating… or self-serving.