EconomicCrisis.US

The U.S. needs a “First Amendment for the economy” after a failure of regulation that could be remedied by giving the Federal Reserve more responsibility, said Lee C. Bollinger, president of Columbia University in New York.

An independent regulator modeled on the judicial system should issue written rulings and “if it’s wrong, go back and change the precedent,” said Bollinger, a constitutional scholar and one of three Federal Reserve Bank of New York directors representing the public, in an interview yesterday. Bollinger, 63, who has led Columbia since 2002 and served on the New York Fed’s board since 2006, called the economic crisis a “huge failure of public regulation.”
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An international financial advisory group said Tuesday that accounting rules were not the cause of the recent credit crisis.

The Financial Crisis Advisory Group also voiced concern about recent regulatory pressure that led to the easing of guidelines about how banks value risky assets that were at the center of the crisis.

In a report released Tuesday, the group said “accounting standards were not a root cause of the financial crisis,” but did acknowledge that the weakness in the application of rules reduced credibility in financial reporting.

At the heart of the debate over accounting standards is a rule determining how banks can value assets such as mortgage-backed securities. In a split vote in early April, the U.S. Financial Accounting Standards Board approved a change to the rule, allowing financial firms to value assets at what they would go for in an “orderly” sale, as opposed to a forced or distressed sale.
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This summer has been dominated by the raging debate over health care reform. Any discussion about the financial sector has usually focused on the surging stock market, with the Dow on Thursday surpassing the 9,000 mark for the first time since January. All things considered, it’s easy to see why the Obama administration’s proposed financial regulatory overhaul has been relegated to the back seat.

But today the sweeping measures to revamp the financial system in the wake of the worst financial crisis since the Great Depression are once again taking center stage on Capitol Hill. Treasury Secretary Tim Geithner, Federal Reserve chief Ben Bernanke, and FDIC chair Sheila Bair, among others, are testifying on the measures before the House Financial Services committee.
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Several large US regional banks recently have reported disappointing quarterly earnings, as a lack of market activities widens their exposure to bad loans and the housing slump.

The troubles of these banks, essential gears in getting the recession-mired economy back on track, contrasts with the spectacular multibillion-dollar profits posted by their much larger rivals, such as Bank of America, JPMorgan Chase or Wells Fargo.

But these megastars “were getting benefits from the trading” in markets, which have put in strong gains since March, said Marc Pado, an analyst at Cantor Fitzgerald.
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