STAFF NEWS & ANALYSIS
Geithner Signals Openness to Council of Regulators in Shift
By Staff News & Analysis - June 10, 2009

Treasury Secretary Timothy Geithner signaled he may support the idea of a council of regulators to monitor threats to the financial system, after previously insisting that a single agency do the job. Geithner's openness to the change follows public opposition by a growing number of lawmakers to suggestions that the Federal Reserve get the job of overseeing companies deemed too-big-to- fail. Other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair and Securities and Exchange Commission Chairman Mary Schapiro, have also criticized the concept of a single systemic-risk regulator. "I don't believe it's necessary or desirable for us to concentrate all authority for dealing with future risks to the system in one agency", Geithner told a Senate Appropriations subcommittee today in Washington. – Bloomberg

Dominant Social Theme: The adults will work out the details.

Free-Market Analysis: Wasn't the Federal Reserve supposed to take over risk-regulation for a grateful, needy nation? We expected it, given how predictably the crisis was playing out. Like an adult Ferris wheel, the central-bank-driven business cycle was rotating as anticipated, along with the blame game. From high up, Fed apologists took in the view and pointed fingers at Wall Street, pinning the responsibility on private industry for yet another central-bank led economic crisis. Legislators howled. CNN reported. Bernanke testified continually and sorrowfully about private-market greed. But somewhere, somehow, the wheel began to hesitate, even to halt. A surprising turn of events.

The Fed itself seems to have slowed. It has mis-calculated at various points throughout. So much so that we think it cannot be much fun to be involved with the Fed anymore. As a result of ill-taken decisions, a panicked Fed has cast trillions at American and foreign financial entities. These firms, like the sacred Jehovah, are not to be named. And this, too, has upset the public and Congress.

Woes mount. Today, the Fed is faced with a determined effort to audit its voluminous books. It is no small challenge, with some 200 Congressional co-sponsors and rising (and a companion bill in the Senate). In fact, the Fed braintrust is hiring a congressional liaison to attempt to work with Congress to reach a cordial understanding. Good luck. It is so very, very late. Libertarian Republican Ron Paul (R-Tex) is leading the anti-Fed charge, and he has been formally trying to uproot central banking for several decades now – on constitutional grounds.

Yes, the Fed brain-trust has seen better days. At first, it sent its best up to the Hill to testify. But then there was the Fed's inspector general Elizabeth Coleman. It is impossible to overstate the bizarre nature of Coleman's presence, nor her testimony. If her presentation were made into a case-study, it surely should be characterized as one of the single-worst public relations decisions ever made. It is the gift that keeps on giving. Today, (only a few days after we became aware of about 500,000 views) various clips of her Titanic-like testimony have grown at a phenomenal rate, to at least one million views on Youtube. We would estimate, as before, that 5-10 million views are feasible before the end of the year, even sooner. A million the monetary elite can live with. Ten million … hm-mm.

We return to this spectacle over and over, for it is a most important story. The Fed would surely have received sole risk-management authority in another era — certainly without much hemming and hawing. But not in the age of the Internet. Its incompetence is too clear, its secretiveness intolerable. We certainly wonder how the Fed will get the full spectrum of expanded powers that Bernanke seeks. Geithner's change of heart is telling.

Alternative mediums like the Bell are not the only ones in pursuit of this Big Story. The many new viewers that watched the Coleman video in the past week were likely directed there by Bloomberg. That's right. Recently, Bloomberg prominently and astonishingly mentioned the Coleman testimony in an article or two (along with others, as well). Bloomberg has taken up the sport of Fed-prodding! Its sudden preoccupation with Coleman comes on the heels of litigation by Bloomberg to force the Federal Reserve to reveal details of its disbursed trillions.

Very strange. Bloomberg is nothing if mainstream. The decision of the editors of Bloomberg to sue the Fed and then to draw attention to Coleman's testimony is almost as surprising as Coleman's dysfunctional testimony itself, and a tip-off as to the Fed's sudden vulnerability.

What is really going on? We can hear the gears of the "Conspirati" creaking. Could it be that the monetary elite is willing to sacrifice America's central bank, so long as an appropriate substitution is to be found – perhaps swapping it for a less powerful version with a broader, regional scope? Could it be that a decision has been made that the Fed is simply too controversial and carries too much baggage?

After Thoughts

Would the monetary elite, were it to allow the scuppering of the Fed, consider a return to a precious-metals-based standard? That's probably naïve. Still … stranger things have happened. Were the Fed to be dissolved for whatever reason, gold and silver prices would likely benefit in a big way. No matter how smooth the transition, Western economies would be left in chaos, and the dollar reserve currency probably would be shattered. We will watch and wonder at this unfolding saga along with you, dear reader.

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