Legislation is badly needed to overhaul how the federal government regulates the nation’s financial system. Based on my limited knowledge, it appears there are several options available to lawmakers. Regardless of which route is taken, however, Congress must act swiftly to make future financial meltdowns less likely. Many experts are questioning whether the Federal Reserve is the best vehicle to oversee a consolidated regulatory system. Some are even saying more regulation isn’t needed, which is sort of hard to understand, considering that poor regulation helped create our economic mess. I call that the “ostrich approach.”
I believe the goal of regulatory reform should be to create a systemic risk regulator responsible for monitoring financial markets and institutions. This is critical in order to head off the kind of risky practices that contributed to the economy’s current problems. Regardless of what is done, restructuring the regulatory system must be a top priority for the Obama Administration and any proposed legislation should cover all important financial institutions not already subject to federal regulation, including insurance companies and hedge funds. All of the institutions must be regulated in the future. The plight of AIG is the best evidence of why regulation is essential.
It may be that a new entity, independent of all other existing agencies and entities, including the Federal Reserve, is needed. To be effective, such a new entity would have to be given the authority and power to really regulate. In the scheme of things, however, consumer protection must not be forgotten. There must be adequate protection for investors and consumers if our nation’s economic future is to be truly sound. It goes without saying that companies like Fannie Mae and Freddie Mac – which are backed by the government – must be regulated and can’t be allowed to take risks that private companies couldn’t take. Hopefully, our national leaders have learned a good lesson – as painful as that learning process has been – from the mistakes of the past and will now do the right thing for the American people. Our future – as a powerful and influential leader on the international stage – depends on it!
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