Mission Gulp or the Incredible Expanding Fed

New York City -- As the Fed, in exchange for its granting of unprecedented amounts of credit to the financial industry, places more of it under its regulation, two reasonable questions might be 1) How is the Fed going to manage this vast expansion of its mission and 2) Why is the organization chartered by Congress to control our money supply and prevent panics better qualified than any other to regulate financial institutions?

The answer to these questions is 1) with great difficulty and 2) the Fed is not better qualified than other organizations.

In fact, the Fed already a large complex organization comprised of regional federal reserve banks, an open markets committe that must manage the twin goals of controlling inflation and promoting growth, a lending operation and a supervisory organization is now being asked to become an uber regulator.  Its role in regulation may well come in conflict with its other duties.  While the repeal of Glass Steagall in 1909 in may have made the old system of bank regulation on one side by different regulators corresponding to the type of bank and securities regulation on the other by the SEC in need of an update, placing our entire financial system under the regulation of the Fed in the middle of a financial crisis raises obvious concerns.

During the 1998 financial crisis, the Clinton Administration often said that the middle of a fire is no time to re-organize the fire department.  That is exactly what is happening today without anyone really paying attention.