Wednesday, June 10, 2009

A Damn Good Idea

From Bloomberg:

House Republicans would let non-bank institutions fail in bankruptcy court and strip the Federal Reserve of supervisory powers as part of a plan to revamp U.S. financial regulations, a draft document showed.

Republican lawmakers are also proposing a market stability board, led by the Treasury secretary, to identify risks that may jeopardize the financial system, according to an outline of the plan obtained by Bloomberg News. Republicans in the House Financial Services Committee are scheduled to release a plan June 11. The Obama administration will announce its regulatory proposal June 17.

“From this time forward, businesses should not anticipate the federal government to step in and bail them out,” Representative Scott Garrett, a New Jersey Republican who will help unveil the plan, said yesterday in a telephone interview. “That’s contrary to the fundamental ideas of capitalism and free markets.”

Now -- stripping the Fed of its supervisory powers is damn stupid and shouldn't even be considered. However, the Fed does need to use its powers more often, instead of when a financial meltdown is occurring. The financial stability board sounds interesting, but I'm not sure it would be needed if we keep the Fed as the central regulator.

But, the idea of creating a special bankruptcy code provision in the "too big too fail" category is a damn good idea and one that should be enacted ASAP.