Friday, May 19, 2006

Disconnect Between Treasury and Fed

Today, Treasury Secretary Snow announced the administration's preference for more regulation of the mortgage industry.

"Echoing comments made earlier by Treasury Undersecretary Randal Quarles, Snow said: 'We believe that limitations should be placed on the size of the housing GSEs' retained mortgage investment portfolios, and that the GSEs should have a "world class" regulator with the authority and direction to limit the size of their retained portfolios.' " (reference article)

This seems contrary to the Republican's platform of less regulation and is probably a counterproductive idea. But worse than that, perhaps left and right hands (Treasury vs. Fed) should get together from time to time and discuss what each is going to say and do? They're not supposed to consult each other; the Fed is an "independent" organism, remember, so whatever the Treasury says is not necessarily going to be heeded by the Fed. But at least they could inform each other of their respective agendas.

What we have now is a Fed that likes to blow bubbles and a Treasury that wants to put a vice on them -- hardly the way to correct the problem.

The problem should be attacked at the source, so perhaps if the Treasury asked kindly enough, the Fed would be willing to stop blowing the bubbles in the first place? And the Fed could politely point out to Treasury that they are supposed to be pro-free-market and not against? Duh...

[Thanks to and Reuters for the photo.]


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