My Perspective: FEDs Getting More Power Equals Future Economic Trouble

President Barack Obama unveiled his new financial police change that creates a new consumer protection agency. It is all in an effort to avert future economic crises like the one still wreaking havoc at home and around the globe. Obama's sweeping change of business regulation also embraces new powers for the Federal Reserve and new rules that would reach into currently unregulated regions of the financial markets. An 85-page draft details an effort to change a regime that Obama's economic team maintained had become too porous for the innovations and intricacies of the today's financial markets.

With Congress already embroiled in health care legislation, Obama has set an ambitious schedule, pushing lawmakers to adopt a new regulatory regime by year's end. The consumer agency would ride herd on credit and lending practices that largely went undetected as the economy was sliding into a deep recession. Obama said on Tuesday he will put forward "a very strong set of regulatory measures that we think can prevent this kind of crisis from happening again."

Christina Romer, who heads the Council of Economic Advisers, called it an "appropriate balance" and said the administration was "not bulldozing the whole system." But House Republican Leader John Boehner said that it would have "the federal government deciding what interest ought to be charged on credit cards" and what financial products are available. "I think it's just going to be too big of a foot on an industry that already is having financial problems," Boehner said in an appearance on ABC's "Good Morning America" Wednesday.

The financial sector and lawmakers from both parties concede the need for significant changes in the rules that govern the intricate and interconnected world of banking and investment. But the details of Obama's proposal already are facing resistance, signaling a tough sell for a president who is spending major political capital on his health care overhaul. Under Obama's plan, the Fed would gain power to supervise holding companies and large financial institutions considered so big that their failure could undermine the nation's financial system. But even as it gains new powers, the Fed also would lose some banking authority to a new Consumer Financial Protection Agency.

However Obama's proposal would require the Fed, which now can independently use emergency powers to bail out failing banks, to first obtain Treasury approval before extending credit to institutions in "unusual and exigent circumstances." The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration's proposal. Many bankers oppose a new consumer protection regulator and many lawmakers worry the Fed could become too powerful. Friction over those points could slow any major overhaul.

In many, those who think the Fed is losing some banking authority to a new Consumer Financial Proteciton Agency are wrong. The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded. If you go to the Fed’s website, it says today, the Federal Reserve's duties fall into four general areas:

• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

The reality is that Fed is a part of the economic problem, not the solution to fixing it. Therefore this plan put forth by the Obama administration is a smoke and mirror plan because it doesn’t regulate the Fed and it doesn’t do any auditing of the Fed in terms of how much money it lends to other countries as well as how much it has given us the U.S. in terms of finances. The reality is that the Federal Reserve is more powerful than the U.S. Treasury and the fact that it is the central bank of America and doesn’t fall under any government regulations makes one question, just how powerful the Fed is in regards to the financial system in our country. Besides having the Federal Reserve supervise "systemically significant" institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system. The arrangement is designed to prevent crashes like those that felled AIG and Lehman Brothers.

But in conjunction with the Fed's authority over large financial institutions and the new consumer agency, Obama also will propose:

• Additional protections for investors, including greater disclosure by hedge funds; regulation of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight; and new conditions on brokers and originators of asset-backed securities.
• A system for the orderly disposition of any troubled, interconnected firm whose failure poses a risk to the entire financial system, together with rules that insist that financial institutions hold more capital to avoid over-leveraging.
This however doesn’t provide any realistic measures to auditing the Feds or to dealing with the fact that the Security Exchange Commision (SEC) is not as effective as it could have been in regards to matter like Bernie Madoff and other situations similar to that which helped to expand the economic crisis that hurt America and the world. Nonetheless, the reality that giving the Feds more power than it already has over our financial system is one that cause future economic problems for America in the long run. Since the establishment of the Federal Reserve, America has seen a recession or economic decline every 10-20 years no matter if there was a war we were fighting in or not. However the Feds have continuously lent money at higher rates than ever before while at the same time becoming stronger and more powerful in terms of how much the financial control it has over the America’s economy.

Now Obama's plan does not attempt major consolidation of turf-conscious regulatory agencies and does not inject itself into an ongoing debate over whether to bring some insurance companies under federal oversight. "We don't want to tilt at windmills," Obama said on CNBC. Obama's decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt. The new regulator would have the power to demand that customers have the option of simple financial products, to impose fines and to allow states to pass laws that are stricter than the federal standards. Consumer protections are now spread among various state and federal authorities, including the Fed, the SEC, the Federal Trade Commission and banking regulators.

Financial lobbyists rallied against the new agency, saying it's impossible to separate bank regulation from oversight of the products they offer. Democratic Sen. Christopher Dodd of Connecticut, chairman of the Senate Banking, Housing and Urban Affairs Committee, has advocated an alternative plan to strip the Fed of its regulatory role entirely and create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks. Dodd, however, is a strong proponent of a consumer protection agency and is likely to champion that component of Obama's plan.

Still, with the Fed to get more power and Dodd seemingly powerless as he tries to get re-elected in 2010 with the help of the Obama administration, many can expect that Dodd will bow down to the White House on these regulations. Therefore, just like TARP and other financial & economic pieces of legislation attached to previous bills, expect for this to cause more problems to the American economy than good because if the Feds are involved than it has to be bad news. Nothing the Feds have done has resulted in positive results for the nation since the Feds were first given sweeping control of America’s banking system and was given the title as the central bank of the United States of America.

But even with this legislation, it is amazing to see that if you look up the Federal Reserve in the yellow pages or white pages, you never see it under government, which makes even those of us who are not politically intelligent question why does the Fed have a .gov instead of .com since it doesn’t fall under the government in the phone book. That’s just another reason why anyone who thinks that by giving the Feds more power than they already have is good news, will soon realize that the Fed equal trouble for the future of America’s economy and the world.

Therefore politicians like Congressman Ron Paul, R-Texas, are right on when they are seeking to pass legislation that would regulate the Fed and bring the Fed under auditing control of the U.S. government once and for all. In order to understand the economic problems of our nation, we must regulate the appointed central bank of America, the Fed because they are the one’s who regulate our banking system but aren’t really regulated by our own government in return. That’s why an external and internal audit of the Fed should bring America’s economy a much needed boost because it will reveal just how bad the Fed has been practicing banking that has resulted in decade after decade of recessions and depressions to not only America but the world.

So if President Barack Obama wants to really fix the economic crisis and bring about real regulations than he too should champion Ron Paul’s bill of auditing the Feds as well as propose sweeping changes to who the SEC operates. Those two things will go a long way in fixing the economic problems on Wall Street more so than what Obama is proposing right now.

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On the Net:
Federal Reserve: http://www.federalreserve.gov
Securities and Exchange Commission: http://www.sec.gov
Federal Deposit Insurance Corp.: http://www.fdic.gov
Treasury Department: http://www.ustreas.gov
White House Council of Economic Advisers: http://www.whitehouse.gov/administration/eop/cea/
Financial Services Roundtable: http://www.fsround.org/
Federal Trade Commission: http://www.ftc.gov/