Fed seeks broad market oversight power

File this under "things that Brendan doesn't know very much about, but that sound like a pretty big deal":

WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the country’s hodge-podge of regulatory agencies, which many specialists say failed to recognize rampant excesses in mortgage lending until after they triggered what is now the worst financial calamity in decades. ...

The Fed would also be given some authority over Wall Street firms but only when an investment bank’s practices posed a threat to the financial system over all.

The Wall Street Journal says passage of the plan "would likely take years and would also require major compromises from an increasingly partisan Congress," and that it "is likely to trigger messy feuds over turf at a time when confidence in government supervision is low."

Comments

[B. Minich]

SWAT teams? Really?

Wow, I can't wait to see the Fed's SWAT team storm some hapless bank!

*scene: men in kevlar holding guns storm a Wall Street bank*

Banker: "Who are you?!?!"

SWAT TEAM: "We are the Fed SWAT team. Unless you cease and desist acquiring those bad mortgages, we will be forced to kill every last banker in this building."

[B. Minich]

Or even better (well, worse, but better from a fun standpoint), how about the world where the Fed is a shadowy organization that runs the country . . . and has its own armed guards? Now THAT'S scary!

[Andrew]

You know the games are terrible blowouts when Brendan loses enough interest to blog about financial news....

[Mad Max, Esquire]

Why is it we have to give the Fed super-powers when all that needed to happen was proper enforcement and oversight of existing laws and regulations in the first place?

The whole reason we have this sub-prime mortgage mess is because mortgage companies and banks loosened their standards so that somebody who lied on their loan application about their income could get a loan they couldn't afford for zero down. The banks and mortgage companies shirked their responsibility and should pay the cost for that. The damage has been done to housing prices. As for those people walking away from their houses, they shouldn't have qualified for them in the first place. Tough.

What really bothers me is the back-door bailout that is now going on. The Fed is "lending" Treasuries to private banks in exchange for worthless mortgage-backed securities. The Fed is essentially giving away $75 billion in Treasuries without being compensated for them. If this is what they mean by "SWAT Team," I think this country should do without it.

[BK]

Not that I disagree with you, Max, but couldn't it also be argued that the loan applicants shouldn't have lied about their income and/or applied for adjustible rate mortgages and/or loans they simply couldn't afford?

I think there is some level of blame to be placed on individuals. As frequently seems to be the case in America, personal responsibility is now taking a back seat to blaming someone for not stopping you from doing what you did.

Personally, I think the "mortgage crisis" is really the result of a perfect storm of several factors: the widely held belief that home ownership is a right, lack of understanding of personal finance, mortgage brokers and the compensation structure in their industry, lack of oversight by the gov't and banks, and the lowered lending standards that banks allowed themselves to adopt.

[Mad Max, Esquire]

BK-

I agree the individuals shouldn't have lied. But the fact this is a systemic-wide problem makes me think these individuals didn't act on their own. I've heard many stories about how mortgage brokers encouraged applicants to embellish their income, etc. The shear scale of the fraud makes me think that more than one group was involved, ala The Perfect Storm you mentioned.