Do We Need an Investment Risk Regulator?

Having an investment risk regulator is an attempt to prevent the current type of financial crisis that I consider near-Depression.

First, I don’t believe anyone can easily identify "systemic risk." At the time financial institutions were investing in sub-prime mortgage-backed securities, they all believed they were not taking undue risk. They did have recognized financial models that all the regulators knew of and approved.

No federal regulator could identify undue risk at the time. And as for the Federal Reserve, it’s job was not systemic risk, and still isn’t. It’s primarily to maintain the value of the currency. Incidentally, it can do a better job of that.

Also, since 1978. the Fed has had to help enforce the Full Employment and Balanced Growth Act, otherwise known as Humphrey-Hawkins. That conflicts with their prime function.The law, in fact, creates an inflating bias.

Congress failed miserably with regard to the financial meltdown, but no one leader in Congress wants to recognize that or take the responsibility. The government-sponsored Fannie Mae and Freddie Mac and their congressional overseers created and promoted toxic assets that financial institutions all over the world bought.

Want more of the same? You will get that despite the added risk regulators.