Take, for example, the role of William C. Dudley, an economist who spend a decade working at Goldman Sachs, who is now the head of the Federal Reserve Bank of New York. He has faced criticism for his lack of regulation of Wall Street. During the financial crisis the NY Reserve Bank under Geithner "was primarily concerned with saving Wall Street from collapse."
Problems of regulation at the Federal Reserve Bank of New York have persisted since then.
William Dudley has his own views on how banks should be regulated and what powers should accrue to the Federal Reserve.
Below, Mike Whitney discusses Dudley's position and makes suggestions for reform of the banking system:
Power Grab at the Fed
By Mike Whitney - Counterpunch
. . . .
The head of the New York Fed wants Congress to grant the Central Bank extraordinary new powers to deal with future financial system emergencies like the bank run that followed Lehman Brothers collapse in September 2008. Here’s the story from the New York Times:
“[William] Dudley’s concern is about a little-noticed piece of the 2010 Dodd-Frank Act that actually reduced the central bank’s authority in one crucial area: its ability to provide emergency funding to strapped financial firms.The Fed arrested the 2008 financial crisis by using this authority to create a series of unprecedented programs that offered emergency financing not just to American banks – its traditional flock – but also to foreign banks, and not just to banks but to other kinds of financial companies as well, and indeed to other kinds of companies entirely.” (“Equipping the Fed for a Future Crisis”, New York Times). . . .What Dudley really wants is the power to put out the fires which the serial arsonists at the Fed have started with their shabby, easy money policies and “light touch” regulation. They need to get their own house in order before they go asking congress for more favors.
Here’s a novel idea: Why not just fix the system? Why not create regulations that actually work, that increase stability and make the system safer?
Nah, that would cut into profits, so it’s a non-starter. Isn’t that what’s going on here; Dudley’s trying to shrug the costs onto taxpayers so he doesn’t ruffle feathers on Wall Street. It’s all about the bottom line. Here’s more from the Times:
“[Dudley] argued in his recent speech that it would make no sense to draw a line between banks and other kinds of financial firms if both were playing essentially the same role in the broader economy.
Both should be regulated, and both should be backstopped.“If we believe that these activities provide essential credit intermediation services to the real economy that could not be easily replaced by other forms of intermediation, then the same logic that leads us to backstop commercial banking with a lender of last resort might lead us to backstop the banking activity taking place in the markets in a similar way,” he told the New York Bankers Association.” (NYT)Hold on there, Dudley; “essential credit intermediation” can mean anything from issuing short-term loans to productive businesses to off-loading dodgy Collateral Debt Obligations (CDOs) to gullible investor groups. Are we going to throw a lifeline to every snakeoil salesman and scamster in the industry?
Yep. That’s the Dudley method. Bail ‘em all out and start over! What’s a few trillion among friends? It’s all funny money anyway, isn’t it?
Read the whole article here
Read the New York Times Article here