Monday, October 24, 2005
Bernanke To Replace Greenspan
"The President has made a distinguished appointment in Ben Bernanke. Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation as Chairman of the Federal Reserve Board."End update.
This does not sound controversial. Bernanke was appointed to the Fed's Board of Governors in 2002. Here's an interview with him:
Bernanke: Yes, that was a theme of my very first speech as a governor. I suggested that, from a policy perspective, there are two ways to approach bubbles: One is interest rate policy, the other is micro-regulatory policy. Micro-regulatory policy is the much better approach, in my view.This is pretty significant. The Red Alert I posted on Saturday looks like it comes from this man's thinking, and what he is proposing would vastly expand the Fed's ability to tinker with the economy, I suspect.
Rolnick: What do you think of the idea that bank regulators and the federal government should make a commitment that uninsured depositors in large banks will always face some risk? Under such a commitment, markets would price uninsured deposits accordingly, and the price signal could be used by regulators to help evaluate bank risk.
Bernanke: A number of people have suggested that we rely on uninsured, subordinated debt to provide a market signal about the quality of the bank. I think that's a very interesting idea, and I note that market signals play some role in current bank supervision and would continue to do so under the proposed reforms to the Basel capital standards. I would be reluctant to put all of our eggs in that basket, however, because banks are inherently somewhat opaque institutions, and it's not evident that the market signal would be completely informative about the state of the financial institution. So I would supplement market signals with capital requirements and various forms of direct supervision.
Maybe they were worried about Harriet Myers being appointed....
As I posted this last weekend, hidden in the new risk-based capital proposal was a mechanism by which the Fed could greatly expand its ability to micro-manage the economy.
I believe that some degree of regulation (especially of financial markets) is necessary, but that trying to micro-manage economies is suicidal. I think this man believes he can micro-manage the economy; I don't believe it's possible. I believe that the attempt will create disaster.
Then again, how come I see this, and no one else does? Maybe I'm waaay off base...but still...
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