Marketwatch is reporting that the credit problems in the financial markets are directly a result of the Federal Reserve’s regulatory minimalism during the past decade.
In the wake of the financial market turmoil that arose over the summer and even now threatens to push the U.S. into recession, there has been a remarkable lack of finger-pointing so far over the cause of the crisis.
But one observer, Tom Schlesinger, the founder and executive director of the Financial Markets Center, a think tank that has followed the Federal Reserve closely for the past decade, believes the blame for the crisis falls squarely on the Fed and accuses the central bank of “regulatory foot-dragging” that has harmed the public.
The Federal Reserve was pretty lax on regulation during the past decade which allowed financial institutions the flexibility to offer many ‘innovative’ services that haven’t been tried before.
In his recent autobiography, Greenspan said when he accepted the top Fed job, he worried that his Ayn Randian brand of libertarianism would make it difficult to be a bank regulator and said he planned to allow others at the Fed to take the lead.
Upon joining the Fed, Greenspan said he had a “pleasant surprise” when he found the Fed staff was not so keen on regulation either. Together, they interpreted congressional legislation with a view to “letting markets work,” he wrote.
Mr. Greenspan was correct, and the markets are working! Now that investors are realizing how these innovative products and services have performed, they’re approaching them with extreme caution (and in many cases deciding not to get involved at all).
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