There Is No Reason to Panic

The only reason the Fed might want to regulate the investment banks is that it believes itself to be somehow at risk. The markets, ever clear-eyed, will read this for what it is -- potential Fed backing if the big investment banks get into trouble. In other words, we are now proposing to introduce a government-created moral hazard into investment banking. The resulting loss of market discipline will replicate the experience with the S&Ls and Fannie and Freddie.

According to reports, not an eye blinked in the House Financial Services Committee when the Fed's bid for more power was laid on the table last Thursday. This is fully consistent with the past willingness of Congress to condone -- and even encourage -- unimpeded growth at Fannie and Freddie.

The financial ruin of the economy is being assured by Congress as they continue to subsidize disastrous policies with money it does not have.