White House Seeks New Power to Keep Markets Stable

From The New York Times: White House to Seek New U.S. Power to Keep Markets Stable

The Bush administration 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.

I think this is precisely what Naomi Klein warned about in her book, The Shock Doctrine. I suspect the Bush administration is going to try to use the shock of the collapsing economy to quickly deregulate the entire economy to make it easier to loot.

More from the NY Times article:

According to a summary provided by the administration, the plan would consolidate what is now an alphabet soup of banking and securities regulators into a trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms…

The proposal itself began last year as an effort by the Treasury secretary, Henry M. Paulson Jr., to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system.

Their goal seems not to help the American economy, but to make it even easier to pillage the remaining healthy parts of the U.S. economy. Some of the changes Paulson is proposing in the Bush administration’s “blueprint” are more deregulation:

The S.E.C. should take a lighter approach to its oversight, such as allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.

“New products” and less regulation is precisely the ways Wall Street got into their current mess that U.S. taxpayers are being forced to bail them out. Now, Paulson is seeks to consolidate and “steamline” regulatory bodies to remove the little oversight that remains. For example, the administration wants to reduce the power of the Securities and Exchange Commission and merge that body with the Commodity Futures Trading Commission.

Fortunately, we have a Democratic Congress in to protect American interests.

Almost every element of the proposal would have to be approved by Congress, where Democratic leaders are already drafting bills to impose tougher supervision over investment banks, hedge funds and the fast-growing market in derivatives like credit-default swaps.

However, we saw what kind of review the Democrats in Congress gave to legislation proposed by the Bush administration when the country was reeling from the shock of the terrorist attacks of September 11th, 2001. This sort of shock got us the PATRIOT Act. Now this self-inflicted economic wound is causing similar panic. This is precisely the time this untrustworthy administration will use advance their radical economic agenda.

Like what happened in 2001, there may not be much Democratic opposition this time either. According to the NY Times, some of the proposals being advocated by the Bush administration are cleverly cloaked in “reforms” championed by Democrats such as Barney Frank (D-MA), House chairman of the Financial Services Committee. Both Treasury Secretary Henry Paulson and Frank “favor a stronger Fed role”, but the administration is only disguising what they’re really after.

Mr. Paulson’s proposal, however, would fall short of the kind of regulation that Democrats have been proposing. Mr. Frank and other senior Democrats have argued that investment banks and other lightly regulated institutions now compete directly with commercial banks and should be subject to the same kind of regulation – including examiners who regularly pore over their books and quietly demand changes in their practices.

Despite being float as proposals to increase Federal Reserve’s regulatory scope, but to reduce overall regulation. The Fed would be responsible for “market stability” and Paulson’s “proposal would dramatically consolidate a slew of regulators into roughly three big new agencies”. The last time the United States did a big consolidation of agencies we got the inept Department of Homeland Security.

These majority of the proposals being put forward by Paulson were “developed before soaring mortgage defaults kicked off a much broader credit crisis, and most of the proposals are geared to streamlining regulation.” Streamlining, of course, being another word for eliminating. The Bush administration is using the subprime mortgage meltdown as a decoy to advance their economic agenda in a way that is reminiscent of they way they used the attacks of 9/11 to advance their war agenda with Iraq.

I’m not an economist. I’m not a professional investor. So this is just my read. I am concerned that Congress will feel they need to do something, anything and hurry this economic shock therapy into law. Democrats in Congress – do not trust the Bush administration. Slow this shock treatment down. Review and read everything Paulson and the rest of these robber barrons propose.

Congress, do not sell us out again. We can no longer afford your mistakes.