Chairman or Chairwoman?

Sunday, Jun 14, 2009

I think Forbes got her title wrong. It's surprising to see the FDIC Chairwoman blaming the Fed for being a major contributor to the housing crisis by not controlling lending standards. With Timothy Geithner, Treasury Secretary, blaming the Fed for keeping interest rates too low for too long (while he was president of the NY Fed)-- Do these people hate themselves?

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said Friday that while the crisis that swept through the financial world last year has subsided somewhat, it was far from over and there would be "many more bank failures" ahead.

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"No other developed country gives their central bank the kind of power we give our central bank," Bair said.

"[The Fed] had authority to prescribe across-the-board lending standards for mortgages, and a lot of people said they should do that and they just didn't," Bair says as an example of where too many roles led to lapses.

Bair Cautions Banking Crisis Is Not Over, Forbes, June 12, 2009, http://www.forbes.com/2009/06/12/shelia-bair-fdic-business-beltway-bair.html.

"Congressman KANJORSKI: ... Studying the inside of our regulatory authorities, I find that although they may have the authority, they may have the money to act, they sometimes don't know how to act or don't act properly. And as a result, they have all the authority in the world to prevent something from happening but it happens anyway. And I want to say that charge would lie against the Federal Reserve. And that's where we're hung up in the course of a dilemma. The Federal Reserve, as I can see it, had several opportunities to prevent this economic crisis. One is the long used 14 years of power to lay down the conditions on mortgage obligations in this country. That all the way through about 12 of those 14 years, the Federal Reserve failed to take any action until you came on the scene and finally did enact a set of standards across the board. If they had enacted all of those standards, most of these toxic assets we talk about wouldn't be circulating around the world with the imprimatur that they're supported and passed on by the United States government. Two, there are issues with the Federal Reserve that they are now acquiring additional powers, when they've failed to use their past powers. Could you address those two issues?

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Chairman BERNANKE: Congressman Kanjorski, you're right that the Federal Reserve was late to invoke those consumer protection powers. We have been very aggressive, as you know, for the past couple of years. I think it's very important if the Fed retains those powers, that we strengthen the priority that those have in our decision making. And that we have strengthened accountability that we report frequently to Congress about we're doing in these areas. So that's very important. In terms of additional powers, I think it's worthwhile pointing out that, if you look for example at the Treasury's proposal to make the Fed the consolidated supervisor of systemically critical firms, that it's not a major difference in terms of powers from what we currently have, which is being umbrella supervisor of all the financial holding companies. Rather, it would not be so much a change in powers, but a change in approach, whereby we would take a systemtic, system-wide approach in how we would regulate those firms, rather than looking at them bank by bank, or firm by firm. So it's not a massive increase in power, it's really a change in the strategy."

U.S. House of Representatives, Committee on Oversight and Government Reform, Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout? Part II., 2:17:00, June 25, 2009, http://groc.edgeboss.net/wmedia/groc/transfer/06.25.09.fc.boa.merrill.wvx (http://oversight.house.gov/story.asp?ID=2511).