"How are you going to regulate systemic risk when you are the systemic risk?" This excellent question of Senator Jim Bunning to Federal Reserve Chairman Ben Bernanke hasn’t been answered by the Fed or anybody else. Nonetheless, the Fed, which had a big part in inflating the bubble, is now nominated by some elected representatives of the people to be a philosopher-king of systemic risk. Let us hope this notion will fail to get enacted.
Thomas G. Donlan, in the Oct. 26 Editorial Commentary, suggests that such ideas are a matter of "false faith." He's right. After having observed financial regulation fail time after time, its adherents still display this touching (or pathetic) faith that somehow it will work next time, if we just make it even more pervasive and more intrusive.
Alex J. Pollock is a resident fellow at AEI.