Editorial: Bernanke Caves on Obama’s Provision of Adding More Power to the Fed – Is it Real or a Ploy?

Growing pressure on the beleaguered Federal Reserve has Federal Reserve Chairman Ben Bernanke backpedaling on his original desire to see the Federal Reserve invested with even more power concerning oversight of “systemic risk.”

Even in the midst of immense pressure and criticism in not recognizing the crisis, along with how they’ve handled it, it’s puzzling as to why the Obama administration continues to push for the Federal Reserve to be the lead institution to identify and deal with systemic risk, having already failed miserably in that regard.

While the administration has no problem with creating what is being called an inter-agency council to keep a close eye on financial and banking risk, Obama has still pushed to keep the Federal Reserve as the most powerful of that group, something a growing number of lawmakers are resisting.

The President of the World Bank, Robert Zoellick also concurs with this, saying that not only the Federal Reserve, but central banks around the world have failed in not seeing the threats in the housing markets which have led to the rest of the banking fiasco. I would add that a number of economists for several years had pointed out the dangers, and were not heeded or taken seriously; most if not all of them adhere to the Austrian school of economics.

Zoellick added that he would be extremely cautious on allowing even more regulatory power to be given to the Federal Reserve.

Here is how Bernanke described it at a hearing:

“However, the broader task of monitoring and addressing systemic risks that might arise from the interaction of different types of financial institutions and markets — both regulated and unregulated — may exceed the capacity of any individual supervisor.

“Instead, we should seek to marshal the collective expertise and information of all financial supervisors to identify and respond to developments that threaten the stability of the system as a whole.”

My concern with this is Bernanke is playing the contrite and humble card, and even with “shared” power, will attempt to assume an even larger role than the Federal Reserve has now.

This is probably a response from Bernanke in the growing movement to not only audit and rein in the Federal Reserve, which is increasingly being identified and seen as a major part of the problem, but to ultimately end its existence so it can’t continue to interfere with the economy in ways that create endless boom/bust periods.

So Bernanke may be playing a game here that makes him look like he’s not trying to hold all the cards, while in reality trying to expand the power of the Federal Reserve while looking like he’s conceding a point.

Either way, the Federal Reserve must be audited, and the power diminished while we work on ending the Fed as soon as possible.