Submitted by Benjamin Katcher on April 1, 2008 - 10:30am.
Allocating more regulatory power to the Fed is problematic for two reasons. First, the Fed has a poor track record of overseeing financial markets. Chairman Greenspan's refusal to regulate hedge funds and derivatives contributed to the current crisis. Second, the Fed is, by design, an undemocratic institution. That is fine for monetary policy, which must be insulated from short-term political pressures. Ordinary financial regulations, however, should be written by lawmakers and executive officials who are more closely accountable to the electorate.
Too Much Power to the Fed
Allocating more regulatory power to the Fed is problematic for two reasons. First, the Fed has a poor track record of overseeing financial markets. Chairman Greenspan's refusal to regulate hedge funds and derivatives contributed to the current crisis. Second, the Fed is, by design, an undemocratic institution. That is fine for monetary policy, which must be insulated from short-term political pressures. Ordinary financial regulations, however, should be written by lawmakers and executive officials who are more closely accountable to the electorate.