Excerpts from- The Real Threat to Fed Independence: Unless we shrink large financial conglomerates, we will end up with a socialized banking system, By henry Kaufman in the Wall Street Journal
The Federal Reserve in coming years will probably become highly politicized and thus lose its quasi-independent status. This is because of past shortcomings in its policies and, more importantly, of difficult decisions that face it in the year just ahead. . .
So, why should we be concerned that the Fed will become highly politicized now? First, there is the Fed's legacy of its inability to limit past financial excesses. By failing to be an effective guardian of our financial system, it has lost credibility. . .
Taken to its logical conclusion, our market-based system of credit allocation would be replaced by a socialized financial system, and the Federal Reserve would become part of it.
Our financial system is at a crossroads. We can either succumb to the forces that are shifting markets toward greater government back-stopping and socialization. Or we can create a structure in which no institution is too big to fail, and a financial system that is supervised effectively by a modernized central bank.
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