Libertarians in the United States must be up in arms as the federal government attempts to broaden its oversight of the States’ financial markets. (Investment banks are probably feeling pangs of anxiety, too.)
The Treasury Department has launched a plan to give the Federal Reserve a broad new authority to oversee market stability in the United States. The plan would allow the Fed full access to investigate institutions that may be jeopardizing the financial marketplace as a whole.
While it may seem the government is overstepping its boundaries -- these would be the most massive changes since Great Depression reforms -- the plan actually makes a lot of sense. The "fragmented" (New York Times), "twisted" (MarketWatch), "decades-old" (Washington Post) system is long-due for a facelift.
The idea is to overhaul the entire regulatory system in the U.S. The remodeled structure would comprise three regulators: a market stability regulator, the one expanding Fed powers; a prudential financial regulator, consolidating oversight of all deposit-taking institutions; and a business conduct regulator, a "Better Business Bureau"-type organization charged with protecting consumers.
The argument against the new system is both a political and a practical one: Interest groups fear an expanding government, and financial institutions want their autonomy. But in a world post-subprime woes, just as in a world post-Great Depression, the markets must give up some liberties in order to emerge from dire straits.
Experts say it may take nearly a decade to implement the new system, and that's if it is approved at all. More likely is that politicos will pick and choose which portions to implement and which to let fall by the wayside.
The U.S. market had barely passed infancy the last time it saw such sweeping authoritative changes. It's about time its regulatory bodies grew up along with it.