the tindog coffeehouse

Treasury Secretary Henry Paulson is asking Congress to give the Fed more powers to regulate the financial system, in light of the collapse (and bailout) of Bear Stearns.

Paulson said the country had come to rely on the Federal Reserve in times of crisis, citing the Fed’s actions to broker a rescue of giant hedge fund Long Term Capital Management in 1998 during the Asian currency crisis and the Bear Stearns episode this year.

“Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk,” Paulson said. “But, as we noted in our blueprint, the Fed has neither the clear statutory authority nor the mandate to anticipate and deal with risk across our entire financial system.”

Yeah, I guess we have come to expect them to protect us, but who are they really protecting: the consumers or the banks? By continuing to bailout companies like Bear Stearns for making bad (and possibly illegal) investments, aren’t we just reinforcing the same bad behavior that led to the company’s collapse in the first place?

Using a parent/child analogy, isn’t that like buying your teenage son a brand-new Mustang after he totaled his last one?

The Fed’s primary responsibility is to control the nation’s monetary policy and regulate commercial banks. Since when does that also include coming to the rescue of investment banks like Bear?

As financial analyst Keith Fitz-Gerald puts it:

The bottom line is that there’s nothing “Federal” about this crisis today any more than there was a year ago when we began sounding the alarm bells and taking a more defensive posture.

Even though it’s being spun as a good thing, by stepping into the fray yet again, the Fed is involuntarily forcing you and me and every other taxpayer to act as guarantors. …

My concern, however, is that the cost of trying to prevent a recession will ultimately cost us more than simply enduring one.

Of course, none of this should come as a surprise to the conspiracy theorists out there, since both Paulson and Fed Chairmen Ben Bernanke recently attended this year’s Bilderberg conference, the annual secret meeting of Europe and North America’s power elite who preach a one-world government and who supposedly gave birth to such things as the EU, NAFTA, and the Kyoto Protocol.

Conspiracy theories aside, though, let me be clear. I’m not saying we should take a completely hands-off approach to dealing with companies like Bear Stearns. Quite the opposite. While I favor laissez-faire capitalism as much as the next guy, there is a role that the government (and to an extent the Federal Reserve) should play in regulating the nation’s financial system. I just think we should be wary any time a federal entity seeks more power. At some point, enough is enough.