financial services

Ron Paul to Head Federal Reserve Oversight Subcommittee?

by Kathryn Ciano on November 5, 2010

in Bailout Watch, Economy

In a bizarre turn of events following Tuesday’s elections, Rep. Ron Paul, the government’s #1 “end or audit the Fed” guy, will likely be in charge of Federal Reserve oversight:

Paul is the ranking member of the Subcommittee on Domestic Monetary Policy and Technology on the Financial Services, which oversees the Federal Reserve, the U.S. Mint and American involvement with international development groups like the World Bank. Unless someone bumps him, he’s next in line for the subcommittee gavel.

This means that Ron Paul will be in charge of ensuring that monetary policy is transparent. Ron Paul, who blames the Fed for manipulating interest rates in a way that deteriorates the way a healthy market functions, will make sure that the public knows what Fed Chairman Ben Bernanke does all day.

Blogging at the D.C. Examiner, I wrote:

The Federal Reserve has enjoyed casual oversight while Congressman Barney Frank served as chairman of the Monetary Policy subcommittee. That is about to change.

Ron Paul has spent his tenure in politics pushing vehemently for a Federal Reserve audit. Paul has been particularly forceful in asking that the Fed reveal where the government is actually spending TARP funds.

After the Nov. 2 election, Ron Paul made it perfectly clear that he intends to use his oversight power to keep the Fed transparent:

Best Way to Curb Irrational Exurberance?

by Fred Smith on July 28, 2009

in Deregulate to Stimulate, Economy, Precaution & Risk, Regulation

Zachary Goldfarb, a Washington Post staff writer, discusses (p. A10, “SEC Moves to Limit Short Sales of Stocks”) this SEC proposal – sympathetically.  The article is naïve – buying the complaint of “High-profile Wall Street executives” that short sellers “played an outsized role in crashing the stock values of several major financial services companies.”  Now, it is certainly true that when an asset value is falling, some will anticipate further declines and sell short – just as many will anticipate that an asset whose values are rising will rise further and buy long.

But in politics, as elsewhere, while success has a thousand fathers, losses are orphans.  Thus, many clamor for curbs on short selling, but there are few calling for curbs on those betting on things still going up.  That is we critique irrational exurberance but we penalize only rational prudence.  The story betrays this bias wonderfully in a telling quote: “The SEC [proposed rules are]… making it more difficult for speculators to pounce on a stock when it is already declining sharply.”  (italitics mine).

Imagine SEC rules designed to make it more difficult for speculators to pounce on a stock when it is already increasing sharply!

When markets boom, politicans take credit.  When markets tank, politicians blame the speculators.  Unfortunately, this bias means that Congress may further cripple the market’s ability to stabilize, to ensure that all information positive as well as negative reaches the market price.  Suppressing information is a bad deal – in civil societies and in the market.