I’m starting to wonder if the answer should be "no." Say you’re on the left and you think that banks have screwed over borrowers and that remedying or preventing this injustice should be a top priority. The Fed is not the place to look to. Barney Frank was exaggerating when he said: "If I was going to list the top 87 entities in Washington in order of
the history of their efforts on consumer protection, the Fed would not
make it," but he said that for a reason. Most of all, the Fed looks after the stability of the banking system, and the macroeconomy, which in my view is how it should be.
From a market-oriented point of view, the case for a Fed role in consumer protection is simply that the agency is better informed and more competent than Congress or the executive branch, not to mention more insulated from political pressure. But that means — as we are seeing today — that Congress will not think the Fed is doing a good job when it comes to consumer protection. The Fed ends up politicized, and under fire, when it should instead be free to pursue its central mission of maintaining macro stability. It might be better to let some other regulatory agency go ahead and make the politically-demanded mistakes here. We don’t want Congress to get into the habit of thinking it can tell the Fed what to do.
How many Representatives are willing to stand up and say: "Voters, I feel your pain, but your behavior was stupid and possibly even fraudulent"?
Have you noticed that significant segments of the press seem to be turning against the Fed? We live in dangerous times, and it is unfortunate that the subprime crisis exploded in an election year.
I was surprised by Daniel Gross’s piece comparing Bernanke’s Fed to FEMA during Katrina, linked to directly above. Other than "report the problem earlier," the key question is what Bernanke’s Fed should have done differently. It would be better to focus on that, but of course that’s a much harder question to answer. A replacement for Michael Brown — even drawn randomly from a pool of CEOs or regulators — would likely be far higher in quality, a replacement for Bernanke would likely be far lower in quality, and that’s more important than any of the supposed parallels.