Bloomberg is reporting Geithner Calls for More Fed Authority to Prevent Future Crises.

Federal Reserve Bank of New York President Timothy Geithner called for greater central bank authority over banks so the financial system can better withstand shocks and recover from the credit crisis.

Officials are searching for ways to prevent a repeat of the decline in credit, sparked by the subprime-mortgage bust, that’s cost banks $389 billion in writedowns worldwide and led the Fed to rescue Bear Stearns Cos. from bankruptcy in March. Geithner’s comments build on congressional testimony he gave in April.

“It is important that we move quickly to adapt the regulatory system to address the vulnerabilities exposed by this financial crisis,” Geithner said. Officials must be careful not to write rules that “make things worse” and “distort incentives in ways that may make the system less safe.”

Geithner cited a March plan by Treasury Secretary Henry Paulson as providing a “sweeping consolidation and realignment of responsibilities.”

The remarks contrast with a speech last week from Richmond Fed President Jeffrey Lacker, who warned that lending to securities firms raises the risk of future tumult. Separately, Charles Plosser, head of the Philadelphia Fed bank, said last week that the Fed should set rules for providing emergency funding to financial institutions.

Fed Uncertainty Principle In Action

Notice how there is a need to “move quickly”. That is always the case in these situations. Heaven forbid that anyone think about what they are doing or why.

More importantly there is a need to move quickly before Congress catches on that it is the Fed’s interest rate policy that is to blame for this mess, not the Fed’s lack of regulation. Of course Congress is to blame as well, so who wants to point fingers?

Geithner’s call is certainly in accordance with the Fed Uncertainty Principle Corollary Number Two:

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Infighting Continues To Spread

Meanwhile the Fed infighting continues to spread. I talked about this in Fed Governors Openly Question Bernanke’s Competence and Infighting At The Fed.

Camps are clearly forming for and against Bernanke, and the Fed governors now seem to be attempting to “one up” each other over various calls for action or inaction. This is a likely sign that things are far worse than the Fed is now admitting.

Mike “Mish” Shedlock
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