This post is in response to the request of “Second Thoughts” that was posted on April 30. Thank you (and others that have responded to my postings) for the thoughtful points that you made in your post.
With regard to the first point…“I'm not convinced that any of the "new" objectives actually conflict in the ordinary course of conducting policy. I have to add that caveat because, clearly, what has been happening is not "ordinary".” Clearly, the times are not “ordinary”. But, my point relates to what has transpired over the past seven and one half years which has brought us to the times that we are now a part of. The policies of the current administration have created a situation in which the goal of ‘saving’ the financial system is in conflict with our responsibilities of being a part of the world financial system. I have written on this in many of my earlier posts and will not go into them further at this point. The tensions created by this divergence of responsibilities have resulted in rapidly increasing commodity prices and a sharp decline in the value of the United States dollar. Providing more and more liquidity to the U. S. financial system has not been looked on favorably in world markets. Adding more and more responsibilities onto any one specific agency at this time only diverts the focus of the heads of the agency and muddies the water. My experience in managing organizations in crisis is that the leadership of the organization needs to bring on a tighter focus to their decisions rather than adding more and more responsibilities to their agenda. So, my point is that in these times that are not “ordinary” we need to keep focus as much as we can. However, the leadership void in Washington D. C. at the present time does not help us to achieve this goal. We need to try and avoid confusing institutional deficiencies with weak leadership.
In terms of the second point made, “The time is ripe to reconsider the structure of all these multiple agencies, with their different agendas, constituencies and leaders, to assure ourselves that our governmental infrastructure is in some sense "optimally" configured to address the world of finance we live in now.” I don’t disagree that the regulatory structure needs to be reconsidered and we are long overdue in aligning the structure with the modern world of money and finance. However, being a fallible human being among other fallible human beings, the idea of being able to create an “optimal” infrastructure or even approach something that might be considered “optimal” is to me the impossible dream. It is a goal to shoot for, but my experience with trying to construct ‘ideal’ systems is that we expect more from humans than they can possibly deliver. Thus, we need to have checks and balances within the system to protect against human error and incompatible human objectives. I am more comfortable giving different agencies different, clear responsibilities so that they can be held accountable for their piece of the pie than to center everything within one or two agencies where we don’t know what is happening and exactly who is responsible. My example of the latter case is FEMA.
That said let me respond to the author’s concern “that having disparate agencies (Treasury, Fed, SEC, Comptroller, etc.) responsible for the various aspects of monetary policy more broadly characterized has been a source of delay and inadequacy.” My feeling here is that having everything within one agency can cause ‘delay and inadequacy’ as much or more than having separated agencies with specific responsibilities.
Let me be more specific on this. In the current environment in Washington D. C. there seems to be a void of leadership…at the Treasury, the Fed, the SEC, the Comptroller…and so on, and so on! I see little or no leadership at the Fed. Paulson tried to carry the ball on the discussion about regulation, but he seems to be ‘out-in-front’ with no one following him. And so on, and so on. There seems to be very little interagency coordination or discussion. Something comes from here and something comes from there…and we are confused and uncertain.
An alternative example…and, I am not promoting one political party over another, for my experience with both the Reagan administration and the Bush 41 administration was much more like what I am going to reference than Bush 43. Read the book by Robert Rubin, “In An Uncertain World”. He writes about crisis after crisis in which the different agencies within the government got together, talked with one another, and worked together. It can be done…effectively…and relatively efficiently. But, I would argue, that was because they had very talented people, one being Tim Geithner who is now the President and Chief Executive Officer of the Federal Reserve Bank of New York, different agencies with strong, independent leadership, who saw the need to work together to resolve problems. If the power is all centered in just one agency you do not get this kind of dynamic.
I hope that this response helps “Second Thoughts” understand where I am coming from. Since no one is the fount of all wisdom, I am open to the possibility that I am not correct on every point I try to make. However, I hope that the dialogue will continue because in discussion we all learn and maybe we can all do a little better with the additional insight.