Ron Paul Calls For The Federal Reserve To Increase Transparency

By Learned Foote- Talk Radio News Service

Congressman Ron Paul (R-Texas) recently introduced the Federal Reserve Transparency Act to House, a piece of legislation that calls for a stronger audit of the Federal Reserve along with a "detailed report to Congress.” The bill currently has 241 co-sponsors.

During a forum at the Cato Institute, Paul said he originally decided to run for Congress in the 1970s due to his interest in monetary policy, which is conducted by the Federal Reserve. “I’ve been talking about it for decades, and arguing that we had a financial system that was very fryable, very vulnerable, and it was the Fed that was creating the bubbles. Therefore we should be looking into it and preventing these problems rather than waiting for cataclysmic financial crisis to hit.”

Gilbert Schwartz, Former Associate General Counsel to the Federal Reserve, appeared alongside Paul, argued that the Fed is responsible for the financial crisis to some degree, he praised the “flexibility that the Federal Reserve exhibited in terms of their willingness to make sure that the economy—not just the U.S. economy, but also the world financial system—did not collapse.”

Schwartz went on to explain that the Fed understands the growing demand for transparency. He cited recent financial statements released by the Fed, saying, “clearly the message is getting to the Fed, and... this indicates at least some degree of attempt by the Fed to: one, be responsive to that criticism, and number two, probably to thwart the legislation that would otherwise subject them to GAO [U.S. Government Accountability Office] audit.”

Paul said that his bill will “open the books,” but not necessarily affect monetary policy. “It’s less confrontational for those who want to design regulations and deal with with monetary policy, and I think that’s why we’re getting such bipartisan support.” Paul believes, however, that if the audit is conducted, public opinion will turn against the Fed and monetary policy will be substantially challenged.

Ron Paul attributed the bills' support to the changing landscape of the economic system. “It had to do with the TARP funds,” Paul explained. “There are a few spammers out there that are interested in what I’ve been doing, and they’re letting their Congressmen know."

Sen. Vitter (R-La.) Criticizes Plan To Increase The Fed's Powers

Senator David Vitter (R-La.) argued that Obama's plan to increase the power of the Fed and link some of its behavior to Treasury approval could go too far in collapsing the distinction between the Federal Reserve and the government. (0:34)

Regulation Reform Could Grant The Fed New Powers

By Learned Foote- Talk Radio News Service

At a hearing before the Senate Committee on Banking, Housing, and Urban Affairs, Treasury Secretary Tim Geithner answered questions about the proposal for a "sweeping set of regulatory reforms" announced on Wednesday by President Obama.

All of the senators agreed that regulatory reform was long overdue, but several questioned the expansion of power granted to the Federal Reserve under this proposal.

Geithner said that this proposal will not address every problem of the financial system, but is instead designed to cope with the major causes of the financial crisis. Geithner argued that the regulatory system failed due to the absence of an overarching regulator guarding the system as a whole, in order to identify concentrated systemic risk to the financial system.


"Risk to our system can come from almost any quarter," said Geithner. "We must be able to look in every corner and across the horizon for dangers, and our system was not able to do that."

He proposed a Financial Services Oversight Council, consisting of the heads of all regulatory agencies to identify gaps in the the government supervisory framework. However, he argued that a committee should not regulate the largest, most complicated institutions. Geithner said that the Federal Reserve could best take on that regulatory role, with a "carefully designed, modest amount of additional authority." He noted that some powers would also be taken away from the Fed under this proposal.

Senator Chris Dodd (D-Conn) said that the proposal would grant "extraordinary authority and power" to the Fed, and quoted the former Chairman of the Federal Reserve, Paul Volcker, who had previously stated that giving the Fed too many responsibilities could interfere with its ability to regulate monetary policy. Dodd also criticized the track record of the Fed in the past. Dodd noted that Congress gave authority to the Fed to regulate mortgages in 1994, and yet they "dropped the ball entirely" by failing to address the mortgage crisis in a timely manner.

The senators also expressed wishes that the Fed should remain an independent entity, and a few criticized certain provisions that would require the Fed to obtain the permission of the executive branch to lend money to institutions unregulated by the Fed, a move that some argued would politicize the policies set forth by the Fed.

Questionable Future for the Financial Market

By Courtney Costello- Talk Radio News Service

The Federal Reserve Board sponsored a conference today in Washington, D.C., and outlined the United States financial market today and where new economic research will lead into the future. The conference was held to “go beyond the blog level discussion of many of these [economic] issues” and experts presented scholarly papers to give a sense of what new ideas are forming after the recent economic crisis around the globe.

Mark Gertler, a professor of economics at New York University said, “There is a need for new financial market regulation.”

The Federal Reserve should make a direct impact in markets where private groups are hurting, since evidence shows that it can push down credit costs in those markets, Gertler said.

“Lawmakers and policy makers will need to keep in mind the complex but undeniable way that financial markets...interact with the real economy...The Federal Reserve can and must play an integral role in the financial and regulatory framework in the United States,” said Eric Rosengren, President of the Federal Reserve Bank of Boston.

Greenspan: Regulating Banks Was A Failure

By Michael Combier-Talk Radio News Service

Billions of dollars used in the federal bailout of financial institutions was a mistake,said Former Federal Reserve Chairman Alan Greenspan today in D.C. Speaking at the American Enterprise Institute, Greenspan said that the ‘Too Big To Fail’ doctrine used by the Bush and Obama Administrations was seriously flawed.

“Earlier this decade,” said Greenspan, “it was widely expected that the next crisis would be triggered by the large and persistent US current-account deficit precipitating a collapse of the US dollar. The dollar accordingly came under heavy selling pressure” when the euro-dollar exchange rate rose starting in spring 2003.

“A financial crisis is characterized, in fact defined by an abrupt, discontinuous break in asset prices. But discontinuities are, of necessity, a surprise and that requires that the crisis be largely unanticipated by market participants. For, were it otherwise, financial arbiters would have diverted it,” said Greenspan.

In March, in light of the failure of Lehman Brothers and the rescue of AIG, Treasury Secretary Timothy Geithner proposed a plan to set a systemic regulator which would oversee the entire financial system and would prevent certain banks and nonbank financial firms to collapse financially. The plan would give the authority to the Federal Deposit Insurance Corporation the authority to bail out or liquidate failing banks or firms.

Greenspan said that “it is one thing to identify firms whose collapse might severely impair financial intermediation; it is quite another to identify institutions whose failure will lead to systemic breakdown. Systemic risk is readily identifiable. Potential systemic failure is not,” he said.

For Greenspan, the role of shareholders is important to explain the current financial crisis. “In Capitalist societies, we need shareholders to govern,” said Greenspan. “But their perspective has become increasingly that of investors, not owner-managers. When dissatisfied with corporate performance, they tend to sell their shares rather than seek to change management.”

“Of all the regulatory challenges that have emerged out of this crisis,” Greenspan views “the ‘too big to fail’ problem and its precedents, now fresh in everyone’s mind, is the most threatening to market efficiency and our economic future.”