Fed Keeps Watch on Wall St. -- From the Inside

[flashl]

Source: Washington Post

In the two months since the government rescue of Bear Stearns, the Federal Reserve has built on the fly a new system of monitoring investment banks, radically redefining the central bank's role overseeing Wall Street.

New York Fed employees are working inside major investment banks every day, alongside the Securities and Exchange Commission staff members who are the firms' main regulators. The Fed employees are trying to gather information the central bank can use to make sure the billions of dollars it is lending the investment firms, through a special emergency loan program enacted in March, are not being put at undue risk.

This new approach, which is still at a relatively small scale, offers a window into how the nation's system of regulating financial firms might evolve as policymakers sift through the financial wreckage of the past nine months.

The Bush administration has proposed that the Fed become an all-purpose guarantor of the financial system, with the power to poke its head into any company that poses risks -- not just the large commercial banks it now supervises. Congress is likely to consider legislation overhauling financial regulation next year.

Washington Post

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/05/26/AR2008052601812.html?hpid=topnews

---

Wonder when the public will demand transparency and accountiability of the multiple private entities fulfilling public purposes that routinely generate "public risk and private profits" ?

[soothsayer]

1. Never. The 'fed' sounds too federal for most folks to give it another thought.

[MannyGoldstein]

2. "The Fed" Is Controlled By The Banks

The banks select a majority of the members, our government selects a minority.

The Fed is in place for the banks, not for us.

[bluesmail]

4. and I believe they're not supposed to be bailing out

investment banks

[flashl]

5. Banks which create public risk and private profit ...

June 28, 1990

The Six Trillion Dollar Debt Iceberg; A Review of the Government's Risk Exposure

In a congressional floor speech last spring decrying the cost of the savings and loan S&L bailout, now estimated at between $150 billion and $300 billion, Representative Major Owens, the New York Democrat, declared that he believed there had never been a single item in peacetime that cost the government so much money. Owens raised an intriguing question, and research into federal budget history reveals that he was right. Only World War 11 cost more than the S&L bailout, at least in nominal dollars. But an examination of the finances of other government-backed agencies indicates that the bailout may be just the tip of a fiscal iceberg about to strike the American taxpayer. The total financial obligation of agencies underwritten by the federal government is now some $5.8 trillion and much of that obligation is in bad shape.

The S&L disaster represents an staggering breakdown of government, and the hidden costs to Americans likely will turn out to be several times the amount that the hapless taxpayer is scheduled to pay directly in extra taxes. It will take years to unravel what really happened and why. But one thing is clear: the governments mega-billion dollar commitment to guarantee the deposits of the savings and loans insured by the Federal Savings and Loan Insurance Corporation (FSLIC) was grossly mismanaged. This and the perverse incentives offered by the insurance program led to the wholesale looting of hundreds of thrift institutions.

...

The $4.2 billion loss at the Federal Housing Administration revealed in May 1989 in a General-Accounting Office.(GAO) audit and the Office of Management and Budgets (OMB) projection that the losses continue, are just among the latest hint of a vast liability that could land in the lap of taxpayers. The governments total risk exposure of nearly $6 trillion dollars is more than twice the national debt held by the public and more than five times the annual federal budget countering serious financial problems.

PDF

[pattmarty]

3. I don't see proper regulation EVEN if the Dems have a blowout in Nov.