The GlobeInvestor is reporting Even on Wall Street, capitalism takes a hit.



Socialist-style Fed or financial saviour?



The cover of the latest issue of BusinessWeek shows Ben Bernanke in profile against a bright red and orange backdrop, pensively stroking his grey beard and looking remarkably like Vladimir Ilyich Lenin.



The imagery is intentional and pointed.



"Comrade Ben is determined that there will be no financial meltdown and no depression while he is in command," economist Ed Yardeni wrote to clients. "Given the initial reaction [on Wall Street], I suppose this means we are all financial socialists now."



Guaranteeing Bear Stearns' portfolio of troubled investments sets a bad precedent by transferring potential losses from the market to taxpayers, complained Allan Meltzer, a professor of political economy at Pittsburgh's Carnegie Mellon University.



"I do not believe the current system can remain if the bankers make the profits and the taxpayers share the losses."

Comrade Ben - Reluctant Revolutionary

Fed Calls Regulatory Overhaul "Timely"

Upcoming Treasury Department proposals to make the Federal Reserve the chief regulator of U.S. financial markets and give it sweeping new powers won praise on Saturday from the central bank and the head of the Securities and Exchange Commission.



"The Treasury's report presents a timely and thoughtful analysis and is an important first step in the complex task of modernizing our financial and regulatory architecture. We look forward to working with the Congress and others to help develop a policy framework that will enhance financial and economic stability," a Federal Reserve spokeswoman said.

Let's Take a Look at "Timely"

Who is to blame for the mess we are in?

Perhaps the clearest evidence of the perceived benefits that derivatives have provided is their continued spectacular growth.

The Fed And The Henhouse

The Bush administration is proposing the broadest overhaul of Wall Street regulation since the Great Depression. But the plan, to be unveiled on Monday, has its genesis in a yearlong effort to limit Washington’s role in the market.



The regulatory umbrella created in the 1930s would grow wider, with power concentrated in fewer agencies. But that authority would be limited, doing virtually nothing to regulate the many new financial products whose unwise use has been a culprit in the current financial crisis.



The plan hands vast new authority to the Federal Reserve, essentially formalizing what has been an improvised process over the last three weeks. But some fear that the central bank’s role in creating the current mess will undercut its ability to clean it up.



“The Fed oversaw this meltdown,” said Michael Greenberger, a law professor at the University of Maryland who was a senior official of the Commodity Futures Trading Commission during the Clinton administration. “This is the equivalent of the builders of the Maginot line giving lessons on defense.”



The Fed’s former chairman, Alan Greenspan, for years praised the growth in the derivatives market as a boon for market stability, and resisted calls to use the Fed’s power to increase regulation of the mortgage market.

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