Geithner Plans to Give the Federal Reserve Even More Powers

Treasury Secretary Timothy Geithner put on his best salesman suit today as he faced a Senate Banking Committee that proved largely sceptical to his plans to reform the banking and financial system.

If you read his prepared testimony you come away feeling that this whole financial mess was due to 'gaps' in the current system that nobody had authority to supervise. Geithner failed to mention how the Federal Reserve and the SEC were actively complicit in this catastrophe, instead the Fed is being rewarded with additional powers!

This will have the conspiracists jumping up with joy with another example of "create the problem, create the solution". The Fed will have control of the whole financial system, not just banking. It will have the task of "supervising the largest, most complex and interconnected institutions." Geithner claims, "You don't convene a committee to put out a fire." No, you employ the Federal Reserve, which is governed by... a committee. But as we know, the Fed is not really run by a committee but rather a consortium of private banks.

The Banking Committee is typically circumspect in its criticisms as all the fine details will be hammered out later, but having sat through a large part of the hearing the one near-unanimous voice of disapproval was the expanded role of the Fed. Under the gaze of the world's TV cameras these hearings are largely for show, so that Senators can appear to be human beings to their voters. However, the Federal Reserve Banks seem one small step away from a process started some 100 years ago to completely emasculate US government control of the country's money.

Under the proposed plans the Fed will keep its responsibility for monetary policy (something that should legitimately be with the Treasury - what does the Treasury actually do these days?) plus be the lender of last resort to any financial institution whose latest scam has back-fired but is "too big to fail."

Mercifully, the Fed's role in protecting the consumer will be taken away and a new Consumer Financial Protection Agency created. You could be forgiven for thinking that the Fed had no interest in the lowly consumer anyway, so I very much doubt they'd miss that onerous task.

There will also be a new Financial Services Oversight Council to bring together the heads of all of the major federal financial regulatory agencies to look into those financial gaps that have been so skilfully manipulated by the Fed. Nothing like building a gate after the horse has bolted, especially after all the hay has gone too.

But just in case you feel this is a purely American problem, Geithner has the consoling words that, "I see no conflict ... You see these [other] countries now moving in the other direction to give their central bank more power." Yes, I know, create the crisis, create the solution. Those few countries left that have not sold away their resources to 'independent' external central bankers just also happen to be those countries that are at war or are 'pariah states'.