The New FED

The long arm of the federal government just seems to keep growing. At least it will if our current President and Congress have their way. New proposals for increased financial regulation and expanded powers for the FED were recently unveiled. The proposed changes would give the FED unprecedented power to dictate and control firms and the financial markets. Among the powers would be the ability to order firms to sell or spin off assets if the FED deemed them to be too large. The FED would also be able to force financial firms to assist in the bailout of failing competitors or order them to stop doing certain activities. All of these powers could be exercised by the FED if they deemed any financial firm's size or actions to represent a threat to the stability of the markets.

Not exactly a black and white sort of thing. The FED would also have great discretion in applying the rules to individual firms. It seems to me that giving an arm of the government the ability to order firms to bail out competitors, sell assets, stop conducting certain activities, or even split up is something much closer to communism than capitalism. Why would any firm want to innovate or take risks in the financial sector if they could be forced to stop and sell assets or to pay to unwind failed competitors? The result will be decreased financial innovation, decreased market efficiency, and generally less access to capital. This is another step in a long line of unprecedented intrusions into the free market by our government and a stark deviation from what America has stood for the past 200 years or so.