“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution.” – Thomas Jefferson
If you’re Senator Christopher Dodd (D, CT), your version of the Heimlich maneuver is to choke the poor bloke until dead and replace him with a scarier guy with even greater esophageal problems. The Senator has been hard at work drafting new legislation to strip the Federal Deposit Insurance Corporation and the Federal Reserve of their bank-supervision powers, handing over control to a new council of regulators, overseen by an “independent White House appointee” [1]. No, really, you’re not imagining things. There are a multitude of things wrong with this scenario, but let’s focus on two of them:
Firstly, introducing more regulatory groups creates issues when the remnant groups still exist, even if in a lesser capacity. Sociologists refer to this as “diffusion of responsibility.” Let’s not forget the post-9/11 firestorm about the relationship between the CIA and FBI and how the existence of the two departments, no matter how codified their distinct responsibilities were, created holes in the system [2]. If you’re in a restaurant with only one other person and that person starts choking, what is the chance you will assist with the Heimlich maneuver (the real maneuver, not the Chris Dodd version)? How likely are you to help in the same situation but with one hundred diners in the restaurant?
Furthermore, one would assume we had learned from the housing bubble that politicizing anything, let alone banking policy was a bad idea. Allowing the White House to appoint a single person to be in charge of the monetary oversight is like letting a child decide what’s for dinner. It’s probably not going to be good for you. In the late 1990s and 2000s the federal government pressured banks to lend to people who were less likely to repay their loans – look what has happened and what is about to happen with the Option-ARM mortgages. We see foreign policy change with each new administration. We see energy and social policy change with each administration. Banks shouldn’t have to retool their sails to handle the political winds of each new administration. It’s not healthy for banks nor its customers, not to mentionl the financial stability of the country at home and worldwide.
We do agree with Dodd’s intentions of consolidating some responsibility, but this isn’t the right way. Why retain the empty shells of the Fed and the FDIC, causing more opportunity for gaps in coverage? Why take the responsibility away from semi-independent groups and place it upon the shoulders of the presidential administrations? Why ask the FDIC to insure banks subject to someone else’s rules instead of its own?
Today’s call to action: Let us know in the forums how you feel about this new legislation.
1. “Clash Looms on Banks,” The Wall Street Journal, November 5, 2009.
2. Davisson, Shawn P., “Spooks Vs. Suits – the Ultimate Sibling Rivalry: CIA/FBI Interagency Competition, Communicative Failures, and Effects on U.S. National Security,” 2004.
