Federal Reserve Chairman Ben Bernanke spoke today to the Council on Foreign Relations in Washington, D.C. on the state of the economy and our financial system. In the speech, the chairman acknowledged that the financial system requires a total overhaul as opposed to just additional regulation for banks. He said, "We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components."
This vast overhaul would have to address the shadow banking system as well as the international ramifications associated with these activities. If this regulatory framework is not comprehensive, the activities that caused the current crisis could simply take another unregulated form or move offshore.
One key principle is that the new regulatory framework must address all institutions that are "too big to fail." The Fed Chairman detailed this when he said, "Government rescues of too-big-to-fail firms can be costly to taxpayers, as we have seen recently. Indeed in the present crisis, the too-big-to-fail issue has emerged as an enormous problem."
I believe that the issue of a total overhaul is extremely important. The current regulatory framework is a patchwork that has been pieced together over an extended period of time. If we just put another series of patches on the problem, it may cure it in the short term. However, it will not solve the underlying issue, which may result in an even larger crisis in the future.
The Fed Chairman's speech should be taken as a warning to Congress and the administration. Short-term fixes will not resolve the financial crisis and will only postpone the eventual pain that we will have to endure as we develop a comprehensive regulatory framework.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com. He is the author of Follow the Fed® to Investment Success. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Reader Comments (Page 1 of 1)
3-10-2009 @ 1:46PM
DP said...
Finally the powers that be are realizing this situation is a systemic problem instead of just a single event. Admitting you have a problem is the first step to fixing it. I wonder when they will realize that executives only report to the boards who are friends with the executives? And the lawmakers are all bought and paid for by business. The business world is full of incest and corruption--and so is the government.
3-10-2009 @ 2:38PM
DaSmacker said...
lets not forget Property Appraisers!
same people who inflated prices during the real estate hot times.
AS the matter of fact Property Appraisers are doing completely opposite now - deflating prices for Short sales!
Need a smart software to analyze and create report - kill the rotten human factor! :-)