William Dudley, 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. 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. And Congress should be applauded for that action.
TARP was unpopular. The bailouts were unpopular. People don't like the idea of handing over free money to crooked bankers every time they get themselves into trouble.
Yet Dudley seems genuinely puzzled by the fact that our democratic system is not supposed to proffer unlimited "power of the purse" to the swinish agents of the robber class at the central bank. The system has gotten so convoluted that journalists cannot even recall earlier times when policy was set by the elected representatives of the people and the banks played a subordinate role.
The NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations
at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties. This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large. And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets.
Big Wall Street banks, who are the Fed's primary constituents, have fought any changes to the existing system tooth and nail. They don't give a ratsass whether the markets crash or not. What they care about is boosting quarterly profits so they can add a few zeros onto the Xmas bonus check.
The Fed does what it wants, when it wants. It answers to no one, which is why their books still remain closed to public inspection despite the myriad legal challenges to pry them open.
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?