Don't Get Fooled Again

The Fed botched banking regulation once already. So why does Obama want to give it more power?

By Eliot Spitzer
Posted Tuesday, June 30, 2009, at 4:22 PM ET

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The Federal Reserve Bank has managed through most of its history to reside in obscurity—little understood, rarely questioned, viewed as hovering above the political fray, the domain of technocrats and erudite economists. That should all change.

The Fed's power over all things economic is hard to overstate, and it now desires even more, seeking the title of "systemic risk regulator." Some of us have argued that regulators—and the Fed in particular—have had virtually all the power they needed to avert the economic traumas we have been living through: They just failed to use it. Yet the proposed formalization of the Fed's mega-regulator role requires that we lift the veil that has shielded it from scrutiny for too long.

The United States should not lightly put our fate back in the hands of the very entity whose oversight of the economy and financial sector brought us into the abyss. The Fed's lack of accountability and transparency is no longer justified by its record or sound principles or public policy. Granting the power without asking the tough questions would be following the path of least resistance—regulators don't want to answer the tough questions, and legislators would still rather defer to the Fed than grapple seriously with a tough problem.