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Wednesday, May 23, 2018

The U.S. Federal Reserve as a Regulatory Agency

According to the Wall Street Journal, the Federal Reserve “has operated almost entirely behind closed doors as it rewrites the rule book governing the U.S. financial system.” The paper notes that this has been in sharp contrast to the trend at the Fed toward greater transparency in its interest-rate policies and emergency-lending programs. The complaint of a dearth of public meetings misses, however, not only the scripted nature of such displays, but also the more fundamental question of whether a central bank buffered from political pressure should play such a salient role as regulator. At the very least, the democratic deficit and a lack of accountability may be exacerbated by the Fed’s greater role as a regulator of banks—particularly after the major investment banks become commercial banks, and thus subject to the Fed’s regulations.

The full essay is at "The Federal Reserve as a Regulator of Banks: An Institutional Conflict of Interest."

Related books: 

Essays on the Financial Crisis

Institutional Conflicts of Interest


UN’s General Assembly as Nonbinding on Syria

According to the New York Times, “In a powerful rebuke to Syria’s government, the United Nations General Assembly voted overwhelmingly on [February 16, 2012] to approve a resolution that condemned President Bashar al-Assad’s unbridled crackdown on an 11-month-old uprising and called for his resignation under an Arab League peace proposal to resolve the conflict.” The reporter immediately undercuts his use of powerful by observing that the 137-12 vote (with 17 abstentions) is “a nonbinding action with no power of enforcement at the world body.” The “action” does represent “a significant humiliation” for Assad. I doubt very much if he felt humiliated. His UN ambassador “denounced the resolution as a politically motivated scheme to intervene in Syria by the Western powers and others who ‘would like to settle accounts with Syria.’” Altogether, the first two or three paragraphs of Gladstone’s article can be read in terms of logic as “X, not X.” Of course, the first X gets more attention, so the article gives the impression that the UN did something powerful when in fact the exercise was one of exposing the impotence of the world body.

The full essay is at "The Fecklessness of the UN."

Limiting Bank Size: Crude But Advisable

In February 2012, Tyler Cowen claimed in the New York Times that people across the political spectrum were “talking about splitting up America’s large banks.” At the time, I could discern no such talk, although this does not mean that it was not going on. As the Dodd-Frank financial reform law was being written in 2010, the option of splitting up banks like Bank of America, Goldman Sachs, and JP Morgan Chase was quietly but assiduously kept off the front burners. It is difficult to believe that the big banks would have relaxed in their efforts to relegate such threats in early 2012 as if the passage of the legislation in 2010 meant that more astringent options were no longer possible. In his article, Cowen includes some other questionable claims. Reading between the lines, he seems to have been “playing by the rules” in support of the big guys.

The full essay is at "Limiting the Size of the Big Banks."