Banksters win again: Dodd wants insider regulation
Naked Capitalism March 2, 2010
I felt certain when I read the Financial Times headline, “Proposal sees consumer watchdog role for Fed,” that I must have woken up in a bizarre parallel universe (but that is probably unfair to pretty much all universes parallel to ours: I imagine it would be very difficult to have one more perverse than ours). But no, sadly, this headline is for real; the only possible good news in this account it that this dreadful idea is far from a done deal.
Putting the proposed consumer financial services watchdog in any existing agency, save perhaps the FDIC, no matter what the professed logic is, is really a plan to neuter it (ironically. Richard Shelby, who was the original moving force against having the proposed new agency be independent, wanted to house it at the FDIC; it is the Democrats who are now responsible for the further devolution of this plan). The Treasury, Fed, and Office of the Comptroller of the Currency are notoriously bank friendly. Think they are gonna do anything to seriously inconvenience their charges? Not on your life. The sole reason the FDIC could be a viable choice is that it is the only Federal bank regulator that is serious about enforcement. And that is due to the simple fact that if they mess up on enforcement, they wind up with more dead banks, which is embarrassing, costly, and a ton more work for them than preventing train wrecks in the first place (to the extent they can).
And as bad a choice as the Treasury was (the former planned place to bury the financial products consumer protection agency), it would be part of the Administration, and hence subject to political pressure. Although the Fed is in the process of getting its wings clipped a tad, has managed the neat trick of playing an increasingly political role (starting with Greenspan, in a break with the practice of past Fed chairman, of weighing in on policy issues) while remaining utterly unaccountable to anyone.
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