Don’t fight the Fed.
The old Wall Street axiom isn’t playing well in Washington as Congress takes its first shots at the Obama administration’s package of sweeping reform proposals for the financial sector.
Though various aspects of the plan released Wednesday have drawn criticism, the role of the Fed has seen some of the most strident opposition, from blatant skepticism to diplomatic doubting.
Legislators from both parties have not only questioned the Fed’s past performance and challenged its future capabilities, but have also expressed concern that the central bank will be politicized more than it already is and turned into a bailout instrument of the executive branch.
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Sen. Richard Shelby, R-Ala., for instance, told Treasury Secretary Timothy Geithner during a Senate Banking Committee hearing Thursday that the White House proposals showed a “grossly inflated view of the Fed’s expertise.”
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The administration proposals would make the central bank part of a systemic risk council as well as the front-line regulator of too-big-to-fail firms, whose potential failure could threaten the financial system. The Fed would also have the authority to determine if such a threat existed and recommend closing the firm. (The FDIC, however, would execute the so-called “unwinding” of the business.)
Banking committee chairman Chris Dodd, D-Conn., compared administration’s treatment of the Fed to giving a new car to a teenage driver who’d just wrecked one.
Sen. Charles Schumer, D-N.Y., added that “the Fed has failed miserably” as a bank holding regulator, reflecting a fairly common bipartisan view.