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The Fed Leviathan grows

Well, it didn't take long for the rumors of a new Federal Reserve-led regulatory regime to blossom into a full blown policy announcement. Today, Treasury Secretary Hank Paulson announced plans for the an overhaul of the nation's financial regulatory structure.

In what MSNBC.com calls the "most sweeping changes since the Great Depression", the plan set forth by the Bush administration would enlarge the regulatory role of the Federal Reserve and the SEC and create a "superagency" to oversee financial markets.

Here's more from the LA Times:

"Treasury Secretary Henry Paulson today unveiled a 218-page blueprint for regulatory reform that would represent the largest federal overhaul since the Great Depression.

The blueprint, widely previewed before the secretary's remarks, would give the Federal Reserve more authority to oversee the markets and would create one superagency to oversee both investor protection and market stability, assuming many of the tasks of current agencies, such as the Securities and Exchange Commission and the Office of Thrift Supervision."

So as the Federal Reserve Leviathan looks to expand in size and scope, those who still have a sense of the risks inherent to capitalism wonder how increased regulation could ever help anybody outside of those being "regulated".

"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.”"

Unfortunately, you had to have seen this kind of thing coming down the pike. The current environment of Fed bailouts and increased regulatory powers started to take hold last summer as the debate over the Fed's liquidity injections and loan cap removals began.

The Fed/taxpayer-assisted bailout of Bear Stearns was just the most visible example of these actions to date. That is, until, today's announcement on the new regulatory overhaul was made.

What are the full implications of this newly proposed regulatory structure? What can we expect with the Fed guarding the henhouse?

We'll stay tuned to this issue, and I hope that some of our knowledgeable readers will help point the way by sharing their comments and insights.

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