The Fed vs. Congress

Insert laugh track here.

From Wall Street on Parade:

Republicans are locked in some kind of mind warp where the remedy for every problem is to deregulate. Despite six years of books, academic studies, investigative findings, and a 600-page report from the Financial Crisis Inquiry Commission proving that deregulation was responsible for the financial crash of 2008 – the greatest financial implosion since the Great Depression – Republicans refuse to let facts get in the way of pushing for more deregulation.

Democrats on the other hand, despite overwhelming proof that the Dodd-Frank Wall Street Reform and Consumer Protection Act has actually allowed Wall Street to grow systemically more dangerous and more corrupt since its passage, is irrationally wedded to this legislation.

No amount of evidence will change the Democrats’ position on Dodd-Frank. JPMorgan gambling with hundreds of billions of bank depositors’ money in the London Whale fiasco where $6.2 billion got flushed down the toilet will not change their mind. Cartel activity among the big banks in the interest rate market, precious metals market, foreign currency market will not change their mind. Bank chat rooms called “The Bandits Club,” “The Mafia” and “The Cartel,” where brazen market rigging is alleged to have occurred will not change their mind. Endless criminal investigations and multi-billion dollar settlements will not change their mind. Scandal after scandal destroying public trust in Wall Street and its regulators will not change their mind.

Then there is the New York Fed – the least appropriate body in all the world to be simultaneously carrying out monetary policy via instructions from the Federal Open Market Committee with the involvement of the biggest Wall Street banks while simultaneously attempting to engage in regulatory oversight of the same banks. (See related articles below.)

On Tuesday, Senator Richard Shelby (R-Ala), chair of the Senate Banking Committee indicated he is aware of the conflicted role of the Fed in regulating Wall Street banks. In his opening statement prior to Yellen’s appearance before that body, Shelby said:

“Our central bank has expanded its influence over households, businesses and markets in recent years. Not only has it pushed the boundaries of traditional monetary policy, but it has also consolidated unmatched authority as a financial regulator. As the Fed grows larger and more powerful, much of this authority has become more concentrated in Washington, DC and New York.

“The Fed emerged from the financial crisis as a super-regulator, with unprecedented power over entities that it had not previously overseen. With such a delegation of authority comes a heightened responsibility for Congress to know the impact these new requirements place on our economy as a whole.

“The role of Congress is not to serve on the Federal Open Market Committee.  But, it is to provide strong oversight and, when times demand it, bring about structural reforms.

“As part of this process, the Committee will be holding another hearing next week to discuss options for enhanced oversight and reforming the Fed.”

I disagree with the first paragraph.  Republicans say that deregulation is the answer to everything, but it is not what they do.  At least, not alone.  In fact, the deregulation that occurred was a bipartisan effort.  And it wasn’t really deregulation, at least not for everyone.  It was just deregulation for the big guys – the ones who could afford to buy out each other and bunches of the littler competitors, set up these gigantic universal bank holding companies, and invent the new miracle financial products to trade without any restrictions.

The paragraph in bold is completely correct, but Congress aids and abets this process (sometimes pretty obviously, by giving them $700B).  They aren’t really going to change it.

And the idea that congress is somehow going to act as a check and balance on the Fed is ludicrous.  If you believe that, I’ve got a bunch of hope and change posters dated 2008 that I’d like to sell you.

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