Archive for Friday, March 19, 2010

Bank controls

The nation’s banking system needs more, not less, oversight and supervision.

March 19, 2010


More and more observers are pointing in disgust to the fact so many big banks, among them disgraced agencies which helped create a lot of our economic troubles, are now prospering while people continue to lose jobs and face financial ruin.

Something is grievously wrong with this picture and it is important that Congress does not contribute to continuing the national misery. With that in mind, it is crucial to heed chairman Ben Bernanke’s request to let the Federal Reserve keep all its banking oversight powers to help the central bank guide our economy.

The U.S. Senate is now making efforts to scale back the Fed’s role in overseeing the nation’s banks. Laxity in controls for banking profligacy contributed to the mess we now have to dig out of. It is obvious that time and again there was a failure to use the available controls to rein in some of the outlandish economic activities that helped bring about this massive recession. Now that there is an awareness of the need to exercise proper controls to prevent new disasters, it would be foolish to weaken the instruments at hand.

Bernanke says that policymakers factor data they get from the Fed’s role as the bank regulator into their decisions on interest rates. He adds that banking policies give the Fed insights into the health of the entire banking system. And even though some major banks seem to be pulling out of trouble, many others are still hurting while jobless citizens are suffering along with them.

Saying he wants to overhaul the nation’s financial regulatory structure, Sen. Chris Dodd, D-Conn., Senate Banking Committee chairman, is offering legislation that would strip the Fed of its power to supervise state-chartered banks and bank holding companies with assets of less than $50 billion. That would leave the Fed supervising 35 of the biggest bank holding companies. It currently oversees about 5,000 bank holding companies, about 850 smaller banks that are both state-chartered and are members of the Federal Reserve System and some foreign banks operating in the United States.

Recent history indicates that there should have been far more oversight and intervention of the banking business as things deteriorated. Bernanke has said a number of times that the Fed “was wrong” in not cracking its whip much sooner in a number of instances. At this point, there is a need for more oversight rather than less to prevent new and harmful abuses.

For all its flaws and errors, the Federal Reserve’s oversight of banking policies and actions inspires more confidence than a politicized Congress with its long list of bad political performances, some of which played a major role in the billions of dollars lost in housing loans.


Paul R Getto 8 years, 2 months ago

L.O.: You make some good points, and this is a complex mess. A well-known candidate for president said much the same thing in the summer of 2008. There is more trouble coming, and lots of nasty contracts will roll over in the next few months and years, perhaps causing more heartburn and anguish. While all of us like to keep 'government off our backs' (except for the R's who want to be in doctor's offices, bedrooms and the marriage license bureaus around the country) clearly the efforts to deregulate the financial industry promulgated by both parties at various times have not done much to level out the system. I'm no financial expert, but it appears the last crisis resembled the crash of 1929, when the money men turned the system into a slot machine and were allowed to gamble with other people's money and only had to put up 10% of their own to play in the casino. When their gaming strategies fail and the taxpayers have to pony up the difference, it created stress for all of us. As for incompetence, I don't have an answer, GW got reelected (thanks, perhaps, to the software engineers in Ohio) after he proved himself incompetent in two BS wars and a couple of other critical areas. The American people appear to be quite forgiving, they do.

camper 8 years, 2 months ago

In my mind the SEC failed too. There were other lending institutions who bundled up home loans and created financial instruments out of them. They got passed around like hot potato's and insured by folks like AIG at the gamble that home values would continue to rise. It was a huge bubble and not many realized it was going to burst sooner or later (me among them).

The 1st dominoe to fall was rising gas prices. Soon there were many who struggled to pay $4.00/gallon gas and found it difficult to keep up with mortgage payments. Unlike the home loan origination scheme, I give myself credit on this one. After filling up for $65 bucks one day, I scratched my head and said to myself "man, sooner or later we're going to have to pay the piper for this one". Such a drastic rise in a consumer commodity could not be without some future consequence. Further declines in manufacturing, job outsourcing, and rising health care costs also contributed to foreclosures. And this cycle repeated itself culminating in the disasterous financial crisis.

We saw a historic boom and bust economic cycle. It is the responsibility of regulators to oversee this, but somehow it is hard to do much when things are going good. Ironic that the SEC was created in response to Wall Street speculation and fraud that contributed to the 1929 depression, yet they were very much responsible for the 2008 debacle.

I hope that President Obama can get some legislation passed to prevent the same crisis from happening. Though new loopholes and schemes will surely be found, let's atleast solve the financial derivative problem...if nothing else.

BigPrune 8 years, 2 months ago

Are the banks actually loaning any money yet?

feeble 8 years, 2 months ago

The arrogance of Liberty_One calling Bernanke a moron is astounding. It may well be that he is wrong, but most definitely not a moron. He graduated summa cum laude from Harvard and received a PhD from MIT.

Maybe the free market apologists on this thread show go spend sometime with Greenspan's mea culpa.

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