The Obama "Fix"

Unfortunately the Obama "team" proposes a "fix" for the banking problem that isn't a fix: a systemic risk czar. Here is a bit from the Calculated Risk website that points up the flaw:

Imagine if the Federal Reserve had been the "systemic-risk regulator" during the bubble.

According to Greenspan in 2005 "we don't perceive that there is a national bubble", just "a little froth", and even in March 2007 Bernanke said "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained".

How would a systemic-risk regulator help if they miss the problem?

I still like Obama, but it is clear that he has no knowledge of economics and apparantly simply accepts what the Summers-Geithner-Romer "team" is telling him while ignoring criticisms in the broader community. This was exactly the problem with George Bush. He would listen to his Cheney-Rumsfeld-Rice "team" and ignore any outside opinion. This is leading the US down a path toward zombie banks and a stagnant economy. Sad.

Update: Here is Dean Baker making the same point in his blog:

If a bank with a security guard is successfully robbed, that does not mean the bank did not have a security guard. It just means that the security guard was not effective.

The Fed has been acting as the systematic risk regulator for the U.S. financial system. How else can we explain the decision of Alan Greenspan to intervene in the unraveling of the Long-Term Capital Hedge Fund or his intervention to stop the 1987 stock market crash?

Obviously, the Fed fell down on the job big time in the current crisis, but that is no reason to pretend that we did not have a risk regulator. If we want to avoid having this sort of problem happen again, we have to start by acknowledging that we did have a risk regulator who was unable to perform its job for some reason, just as the problem for the bank was that its security guard was for some reason unable to prevent the robbery.