Fri 17 July 2009, Financial Times

What to do with the Fed

The Fed is in trouble. Obama administration proposals for enhancing the Fed’s supervisory and regulatory role and for assigning it new macro-prudential responsibilities and powers - effectively turning it into the nation’s systemic risk regulator - are meeting with strong and vocal opposition. The criticism is not just coming from the other agencies in the US financial sector regulatory and supervisory spaghetti bowl - agencies that would stand to lose power and influence or could be put out of business completely. The desire for stronger Congressional oversight of the Fed is no longer confined to a few libertarian fruitcakes, conspiracy theorists and old lefties. It is a mainstream view that the Fed has failed to foresee and prevent the crisis, that it has managed it ineffectively since it started, and that it has allowed itself to be used as a quasi-fiscal instrument of the US Treasury, by-passing Congressional control. Are any or all of these criticisms justified? Let’s ponder a few of them.

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